Halliburton to pay $7.5 million fine for not disclosing accounting change
The violations occurred while Vice President Dick Cheney served as Halliburton's chief executive officer, although Cheney, who provided sworn testimony to the SEC, wasn't charged. Two other former executives were charged, however: former controller Robert C. Muchmore Jr., who also settled with the SEC, agreeing to a $50,000 penalty, and former chief financial officer Gary V. Morris, who has not settled.
The SEC filed a civil case against Morris in US District Court in Houston. Neither Morris's lawyer, Tim McCormick of Dallas, nor Muchmore's lawyer, Robert Davis, also of Dallas, could be reached.
As is customary in SEC settlements, Halliburton and Muchmore did not admit or deny wrongdoing. In a statement, Halliburton said the SEC agreed that the accounting change adhered to generally accepted accounting principles and that there is no need to restate the company's earnings from the late 1990s.
The accounting change involved how Halliburton reported cost-overrun revenues from their construction businesses. Before 1998, Halliburton did not book revenue from cost overruns until they were settled with their clients. After that, the company started booking anticipated cost overrun revenues in advance of settling with clients. Halliburton's quarterly pretax income jumped by as much as 46 percent because of the change, the SEC said.
Halliburton, however, did not disclose the change in SEC filings until March 2000, a failure that could have misled investors about the company's profitability, the SEC said. The SEC, however, did not find fraud, and Halliburton continues to use the accounting method.
Analysts who follow the SEC, however, contend that the penalty was unusually high in a case not involving fraud. In 2000, for example, America Online Inc. agreed to a $3.5 million penalty in an accounting practice case, and in a similar case in 1998,
In the Halliburton settlement, the SEC said it sought the penalty because "there were unacceptable lapses in the company's conduct during the course of the investigation, which had the effect of delaying the production of information and documentation."
The settlement only added to the controversy surrounding Halliburton and Cheney's ties to the company. Critics have blasted the Bush administration for no-bid contracts awarded to Halliburton in the rebuilding of Iraq, as well as Halliburton's conduct in Iraq, which has included allegations of overcharges.
Yesterday, the campaign of Democratic presidential nominee John F. Kerry said the settlement only raises more questions about Cheney's role at Halliburton.
"Vice President Cheney's the one who owes the American people a settlement. He needs to settle once and for all the troubling questions surrounding this White House's ties to Halliburton," said a Kerry campaign spokesman, Chad Clanton.
But Cheney's private lawyer, Terrence O'Donnell, said the SEC settlement shows that the vice president acted properly while he led Halliburton.
"He is not party to the SEC proceedings of the settlement," O'Donnell said. "He was not involved in the change of accounting practice or its disclosure. The vice president cooperated fully . . . because he shared the SEC commitment to assuring investor and public confidence."
Marc Landy, a political science professor at Boston College, said Halliburton's most recent troubles might help Democrats reinforce their portrayal of Cheney as not primarily concerned with the public interest. Still, said Landy, it is a glancing blow at best and one that will have little impact on the presidential race.
"The election is about the president, events in Iraq, and events that might affect the economy," Landy said.
Robert Gavin can be reached at rgavin@globe.com.
