Halliburton, Cheney sued for fraud
By By Joe Baker, Senior Editor
Considering the ruling against by a federal judge in one Judical Watch lawsuit, Vice President Dick Cheney is rapidly becoming a political liability for the GOP. The latest damage is that Cheney and his former employer, Halliburton Co., are targets of a second `lawsuit filed by Judicial Watch, a public interest law firm in Washington, D.C.
The lawsuit, filed in federal district court in Dallas, also names 10 members of Halliburtons board of directors and its auditors, Arthur Andersen Co. It alleges Halliburton and Cheney engaged in accounting fraud while Cheney was chairman and CEO of the company from 1995 to 2000.
The Securities and Exchange Commission has brought no charges against the engineering firm.
Were seeking actual and punitive damages for allegations of securities fraud, for changing accounting and not advising the public of these changes, said Larry Klayman, chairman and general counsel of Judicial Watch.
Halliburton claims there is no merit to the action, as do Cheney and the White House but Halliburton admitted in May that the SEC was investigating how the company accounted for cost overruns on construction jobs.
Klayman asserts President Bushs rush to bring on a crackdown on corporate misconduct is designed to shift attention away from the dubious practices of himself and Cheney during their business careers.
Cheneys record in the corporate trenches has been far from admirable. SEC Chairman Harvey Pitt, whom Cheney touted for that job, has announced, with some reluctance, an aggressive probe of Halliburtons accounting practices.
National columnist Robert Scheer noted Cheney has spent most of his adult life as a public trough hack, first in the Ford administration, then as a congressman and then as secretary of defense in the administration of George Bush Sr.
During the Clinton years, Cheney ventured into the private sector for a five-year stint as head of Halliburton. It was a highly profitable hiatus. His final year of corporate service brought him a $36 million payoff.
Behind that little hiatus, says Scheer, lies a trail of conflict-of-interest questions that bear closer scrutiny. Cheney, for example, changing the rules barring private contractors from working on U.S. military bases.
A British newspaper, The Guardian, reported Halliburton, principally through its subsidiary, Kellogg Brown & Root, raked in $3.8 billion in government contracts. Although Bill Clinton was in the White House, the Republicans controlled the appropriations committee of the Congress, and Cheneys company doubled its contributions to the party to $1,212,000 after Cheney took the helm. Government banks loaned or insured loans to the company valued at $1.5 billion, compared with loans of only $100 million in the preceding five years.
The Guardian said one of the most eye-catching contracts was for refurbishing a Siberian oilfield for the Tyumen oil company of Russia. The company got $489 million in credits from the US Export-Import Bank after lobbying by Halliburton on its behalf. Halliburton was to get $292 million for the equipment.
The State Department and the White House wanted to veto the Russian deal because the Tyumen company was allegedly controlled by a large holding company, the Alfa Group, that was under investigation in Russia for ties to organized crime. Alfa says the allegations are nonsense.
The Halliburton lobbyist on the deal was David Gribben, who was Cheneys chief of staff at the Pentagon when Cheney was secretary of defense.
Halliburton has been the major beneficiary of the Pentagons recent sprint to build anti-terrorism bases around the world, a program that will cost taxpayers many billions of dollars.
Parlaying his Pentagon contacts into profit has turned out to be about the only success Cheney can point to as far as business is concerned. He engineered the acquisition of a rival company, Dresser Industries, while he headed Halliburton. At the time the move was put forward as justification for Cheneys salary of $2.2 million per year plus huge stock options.
What investors didnt know is that with that purchase they also took on Dressers long-term liability under a number of asbestos lawsuits. This past Monday, Halliburtons stock tumbled more than 10 percent after the company said it will take a substantial charge against second-quarter earnings to cover future asbestos claims. It also announced more than $250 million in losses and additional one-time charges.
In the past Halliburton has only recorded liabilities for claims that were already filed against it. According to Reuters News Service, since 1976 some 499,000 asbestos claims have been filed against the company and its subsidiaries. Reuters said 292,000 of those were still not settled at the end of the first quarter of this year.
Halliburton said it had resolved 207,000 of these claims at an average cost of $309 per claim after deducting monies it expects to get from its insurance companies. The company also said its subsidiary, formerly known as Kellogg Brown & Root, will have a pretax loss of $119 million on an offshore engineering and construction job in the second quarter.
This past Monday, the company announced a second-quarter reorganization charge of $56 million before taxes (about 8 cents a share) with additional pretax restructuring charges of $20 million anticipated later this year.
Despite all the government goodies gathered under Cheneys watch, the companys earnings were well below expectations until it changed its accounting rules. By anticipating it could collect on cost overruns on numerous construction projects, Cheneys company was able to inflate its profits by $234 million over a four-year span.
Halliburton and Cheney did not reveal this situation to the SEC for more than a year afterward, resulting in more than a dozen lawsuits alleging fraud, including the one filed by Judicial Watch.