July 19, 2002 — -- From the start, Dick Cheney has been one of George Bush's biggest assets: A man who has run big things inside the government and out. Cheney was once a CEO, head of the multibillion-dollar energy exploration company, Halliburton.
But almost two years later, with financial markets reeling from the wave of corporate scandals, the vice president's past as a corporate chieftain has become a liability.
The president has been forced to go out and defend him, recently telling the press, "I've got great confidence in the vice president. He's doing a heck of a good job. When I picked him, I knew he was a fine business leader and a fine, experienced man, and he's doing a great job."
It is the vice president's old job that is the problem. The Securities and Exchange Commission is investigating Halliburton to see if the company used misleading accounting tricks to inflate its profits.
A watchdog group representing shareholders is one of five groups suing Halliburton and Cheney for fraud. "Dick Cheney was CEO of Halliburton. The buck stops on his desk, in the words of Harry Truman," says Larry Klayman, chairman and general counsel of of Washington, D.C.-based Judicial Watch.
When Cheney was at the helm of the oil exploration giant, the company changed the way it calculated its profits. Starting in 1998, Halliburton began counting as revenue money it had not yet collected from clients, because the charges were still in dispute. The company's current chief says Cheney, as CEO, knew about the change.
Adds Klayman: "Rather than booking actual profit, they started to book speculative profit on contracts that were in dispute, that really hadn't come to fruition yet."
The move was approved by the scandal-plagued accounting firm, Arthur Andersen. The change allowed Halliburton to add $89 million in revenues to its books. The added revenue was important: Analysts say it helped Halliburton beat its earnings target by 2 cents a share for the year. Without that accounting change, those same analysts say, the company would have missed that target by 11 cents a share.
But investors did not learn about the change until March 2000, 18 months later, when it was disclosed in a footnote buried deep inside the company's 1999 annual report.
Paul Brown, the chairman of the accounting department at New York University's Graduate School of Business, says the average investor would have to look pretty hard to find it. "It literally amounted to two or three additional sentences in one footnote of dozens of footnotes that were attached to a very detailed financial statement," comments Brown.
Halliburton says it did not disclose the change right away because the amount of money involved was so small: $89 million, in a $17 billion company.
In an e-mail to employees, Halliburton's current CEO David Lesar says "we did not break the law." He points out that the majority of other engineering and construction companies follow the same practice, one that is approved by generally accepted accounting principles.
Some accounting experts say it looks like Halliburton went right up to the line but may not have crossed it. "I'm not telling you that this was the proper accounting policy to follow," notes one such expert, Jack Coffee. "I'm telling you, rather, that this is within the judgmental realm that falls well short of criminal fraud."
"We might have aggressive reporting to the point that possibly it was misleading," acknowledges Brown. "But fraud involves overt actions by egregious partners involved in activities. I don't think that is what is in the case here."
Still, Democrats see a political opening and have pounced. On last Sunday's talk shows they were out in force, calling upon the vice president to start answering questions.
For the president, the timing could not be worse as he tries to make the case that he will rid the country of corporate criminals.
"I think it does injure their credibility on this issue, " believes Coffee. "The Bush administration on the issue of corporate governance is about as compromised as the Clinton administration was on marital fidelity. You have issues that are going to come home to roost again and again."
Cheney stepped down as head of Haliburton to join Bush in the race for the White House in the summer of 2000. He cashed in his stock options for $35 million. Haliburton's fortunes have plunged since Cheney's departure.
Cheney himself refuses to discuss the investigation and is staying away from reporters.
At a Republican fund-raiser this week, he tried to echo the president's call for reform. "For their part, the leaders of the private sector also have responsibilities to be honest and above board in all dealings, and truthful in reporting profits and losses," said Cheney. "Most people who do business in America are indeed trustworthy and honest. … We must not allow the deeds of a few to tarnish our free enterprise system."
But Klayman hopes to make the vice president testify under oath. "If what Halliburton did was legal in terms of their accounting principles, then why didn't they make full disclosure to the American public? Why did they hide it from the public? Where there is smoke, there's fire."
The White House says Klayman's lawsuit is without merit. The vice president's spokeswoman says she will answer no questions about Halliburton.
But Democrats in congress say even if he is cleared by the SEC, they just might have to investigate him themselves … just in time for this fall's elections.