George & Dick's Amazing Corporate Misadventures
corpwatch.org
George and Dick's Amazing
Corporate Misadventures
By Stephen Pizzo
Special to CorpWatch
July 10, 2002
For the first time in American history, an
MBA is sitting in the Oval Office. And, his
chief operating officer, Vice President
Richard Cheney, is no slouch either,
having served as CEO of giant Halliburton
Corporation.
This should be good news. After all, what
better moment in history to have two guys
who know the difference between a debit
and a credit sitting in America's
boardroom? But, as the world's largest
capitalist economy staggers under a
cascade of corporate fraud, its two top
leaders find themselves rendered
ineffectual by of reports of their own
alleged corporate malfeasance.
The allegations now facing former
executives of Enron, WorldCom, Quest,
Xerox, et al, bear more than a passing
similarity to the behavior of both George
W. Bush and Dick Cheney during their
days as corporate executives.
The recent blizzard of corporate
revelations has left investor's minds (and
guts) churning. What is it exactly that
Bush and Cheney did that makes them
part of the problem rather than part of a
solution? Here's a cheat-sheet you can
bring to your next game of Not-So-Trivial
Pursuits:
Harken Energy:
- 1986: At the time Bush's oil company
Spectrum 7, was facing bankruptcy. The
only real asset it had was the name of the
sitting vice president on its door. Rescue
came in the form of Harken Energy.
Harken absorbed Spectrum and Bush
received Harken stock. He also won a
lucrative consulting contract, liberal stock
options and a seat on Harken's board.
- 1987: With its new high-profile director in
place Harken proceeded with a $25 million
stock offering underwritten by a Little
Rock, Arkansas, brokerage house,
Stephens, Inc.
- 1987-89: Despite the fact that Harken
experienced multi-million losses year after
year, Bush was granted $180,375 in
unsecured company loans -- loans that
were later "forgiven." In all during Bush's
tenure on Harken's board the company
approved over $341,000 in loans to
directors and officers all of which were
later forgiven.
- 1989: Harken faced the prospect of
having to report year-end losses of $13.4
million. So, the company arranges -- and
the board approves -- a sham sale of
Harken subsidiary, Aloha Petroleum, to a
group of Harken insiders. The company
sells 80% of Aloha to the group, which
pays for it with a $7.9 million loan from
Harken. This manufactured "profit" allows
Harken to reduce its reported losses for
1989 to a less shocking $3.3 million.
- 1990: In January Harken shocks the oil
industry with the news that the little
money-losing Texas company had beat
Amoco and won an exclusive contract to
drill for oil in the Gulf nation of Bahrain.
Harken's stock jumps in price. The deal
came at a critical moment for Harken. The
company was broke. Worse than broke, it
owned over $150 million to banks.
Harken's board had formed a restructuring
committee on which Bush was assigned
to sit. The restructuring committee would
work with outside consultants from Smith
Barney to plumb the depths of Harken's
troubles and come up with solutions.
That June, Bush found his own solution by
unloading the bulk of his Harken stock --
212,140 shares -- reaping $848,560. Bush
did filed SEC Form 144 -- "Intention to
Sell" before his sale. What he failed to do
was follow up with the required SEC Form
4, which provides the SEC with the critical
information needed to determine whether
or not a company insider traded on public
or non-public information.
Form 4 provides the SEC with two critical
pieces of information -- how much and
when -- exactly how many shares did
Bush sell and the exact date of the sale.
Instead of filing his Form 4 by the 10th of
the month following the sale, as SEC rules
require, Bush waited 8 months before filing
the form. A lot of water had gone under the
bridge by then. Harken's restructuring
committee's report had been made public
showing the company lost $23 million.
Bush's sale on June 22, 1990, occurred
several weeks before that news was made
public.
In 1991 the SEC was asked to look into
Bush's tardy filing and the SEC ordered
Harken to reverse the sham sale of Aloha
Petroleum. Harken restated its 1989
earnings to show a $13.4 million loss. At
time of the SEC inquiry into Bush's insider
trading charge, James A. Doty was the
SEC's General Counsel. Doty now says
he recused himself form the probe. But,
the investigation was quickly closed
without ever interviewing Bush or any other
Harken director.
Dick Cheney and Halliburton
Dick Cheney was appointed CEO of
Halliburton in 1995 and served in that post
until shortly before being sworn in as Vice
President. He became known as a tough,
no nonsense, hands on manager.
Cheney's specialty was landing
government contracts for the firm. During
his five years as CEO, Halliburton got $
2.3 billion in contracts, compared to only $
1.2 billion in the five years before he took
over.
But, in 1998 Halliburton suddenly saw its
bottom line dwindling. Some of those
loses stemmed from cyclical troubles in
the oil industry. But, of much greater
import was Halliburton's disastrous
acquisition of Dresser Industries. Insiders
say the deal was Cheney's baby all the
way.
"This is one of the most exciting things I've
ever been involved in," Cheney said when
the deal was announced.
What Cheney did not mention was that
Halliburton also acquired liability for nearly
300,000 pending legal claims by former
Dresser employees involving
asbestos-related health problems.
Dresser's legal problems quickly began
chewing away at Halliburton's books.
Halliburton tried to stem the losses by
cutting 10,000 jobs. But losses continued
to mount.
Cheney and Halliburton's accounting firm,
Arthur Andersen, looked at the books and
decided that the best way to weather this
storm was to simply change the way
Halliburton counts its chickens. Before
1998 contested revenues -- bills
customers had refused to pay -- were not
booked until the controversy was settled
and the bill either paid or written off as a
loss.
But, in 1998 Cheney decided it those
contested revenues should be counted as
income. It was no small change.
According to a lawsuit filed by the public
advocacy group, Judicial Watch, in 1998
Halliburton booked no less than $89
million in disputed costs. In 1999 another
$98 million in disputed receivables was
booked and $113 million for the year
ended December 31, 2000, and unbilled
receivables of $234 million for the year
ending December 31, 2001, based on
unapproved and disputed cost overruns.
There is little ambiguity when it comes to
accounting for uncollected, disputed
revenues. Unless the company can prove
that it is "probable" they will collect -- not
simply "possible," such amounts cannot
be counted as birds in hand.
Like most corporate CEO's Cheney's
contract had incentives built in. The better
the company did, the better he did.
Cheney was paid at least $12.5 million in
set salary over his five years at Halliburton
but the pot was sweetened with incentive
stock options, of which Cheney received
nearly $39 million worth by the time he
left.
This May the SEC announced it was
investigating Halliburton's "aggressive"
bookkeeping. The company's once
highflying stock has slid from $60 a share
to $13 at this writing.
In June there were rumors -- denied by the
company -- that bankruptcy loomed. It
seems without Dick Cheney -- or at least
his creative bookkeeping -- Halliburton can
no longer figure out how to get black ink to
trickle to its bottom line. Now the matter is
in the hands of the SEC. Top among the
questions they should ask is did Cheney
conspire with Arthur Andersen to
fraudulently inflate Halliburton's bottom
line? And, if so, how much did it add to his
annual compensation each of those
years?
In his speech on Wall Street Tuesday
President Bush said any monies a
company executive received thanks to
phony bookkeeping should be returned.
It is unlikely the Bush administration's
SEC commissioner, Harvey Pitt, will go
there. After all, Pitt was Arthur Andersen's
attorney before being appointed to his
current post.
Stephen Pizzo is an award winning
investigative journalist. He currently edits
The Daily Enron
And a backgrounder from the same author, from 1992:
motherjones.com
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