Amid
all his other troubles, Vice President Richard
Cheney is now stalked by a ghost from his past--the
Richard Cheney who for five years was CEO of
the Halliburton Company. When he left Halliburton
in 2000 to become George W. Bush's running mate,
the Republican ticket was touted as two tough-minded
business executives running against wimpish
politicians. "The American people should be
pleased they have a vice presidential nominee
who has been successful in business," Karen
Hughes, Bush's then-communications director,
enthused.
A
rather different story is told by a class-action
investor lawsuit against Halliburton, recently
revived after languishing for four years. It
describes Cheney as not much different from
other corporate titans ensnared by accusations
of fraud. Brushing aside facts and subordinates'
warnings, CEO Cheney made a series of daring
but wrong decisions that were disastrous for
the company. The managerial incompetence was
compounded by fraudulent accounting gimmicks
that concealed the company's true condition.
Cheney, however, relentlessly issued bullish
assurances, hiding the losses and pumping up
the stock price. Eventually, the truth caught
up with the company--its stock tanked--but Cheney
was already off to Washington, $40 million richer
and running the country. He sold his shares
at the top. HAL, the Halliburton stock symbol,
began falling a few months after his resignation,
from $53 to an eventual low of $8. By then Bush/Cheney
were rolling out another bold venture--the invasion
of Iraq.
A
pity voters didn't know this side of the story
back in 2000. Cheney's performance as CEO predicted
his subsequent behavior as Veep: the willful
ignorance and bullying manipulation of policy,
the arrogance that led the country into deep
trouble. The corporate scandal seems like old
news now, since the basic facts were first revealed
four years ago by the New York Times--generating
a flurry of investor lawsuits. But the story
has new life. The injured investors are now
represented by William Lerach, the ferociously
successful plaintiff lawyer who has won billions
in securities litigation against major corporations
and Wall Street banks, from Enron to Citigroup.
Lerach
has reformulated the Halliburton complaint to
pointedly portray Cheney and "Cheney's team"
as the wrongdoers who fabricated and deceived.
Cheney himself is not named as a defendant,
but he faces a different kind of exposure--grilling
under oath by Lerach, a tenacious trial lawyer
deeply loathed by corporate and financial interests.
(Full disclosure: Lerach's current firm was
among the sponsors of a conference I addressed
earlier this year.) "There's not any question
we will get to that point," Lerach says with
relish. "We can't know whether it will be three
months or three years from now, but we know
Cheney and Halliburton will fight furiously
to keep Cheney from being deposed."
Lerach
might ask Cheney, for instance, about the weird
bookkeeping HAL adopted in 1998--a change that
converted unpaid bills into revenue. The oil
industry was in the low-price doldrums of the
1990s, and Halliburton bid low to win huge fixed-price
contracts on massive construction projects.
But these projects predictably produced huge
cost overruns, and customers refused to pay
for them. Without bothering to inform shareholders,
HAL solved the problem by booking these unpaid
claims as "revenue," wishful thinking that boosted
profits and the stock price.
Lerach
could also ask Cheney why he lowballed the losses
HAL faced from burgeoning asbestos lawsuits.
Cheney personally negotiated the purchase of
Dresser Industries--the deal was closed on a
quail-hunting expedition--but he neglected to
account for the enormous asbestos liabilities
Halliburton would inherit. Cheney's company
reported a trivial exposure of $23 million,
worst case $60 million. The right number was
$4.4 billion. Or what about the $180 million
in "improper/illegal payments" in Nigeria to
win a contract to build a liquid natural-gas
plant? Bribing a foreign government to win business
is against US law. "There was an awful lot of
chicanery and dishonesty at the top of that
company when Cheney was CEO," Lerach observes.
"It is fair to ask, If Cheney didn't know, why
didn't he know? What was his salary for?" Lerach
even asserts that Cheney knew he was in trouble
at Halliburton and sought the vice presidency
to exit before messy facts became known. Lerach
has filed a motion to insure that the discovery
process is kept open for public scrutiny.
The
case is legal hardball at a very high level
and has accumulated numerous oddities along
the way. Why was Cheney not named as a defendant
while other Halliburton executives were? The
original lawyers decline to explain, but others
surmise that, as a matter of strategy, naming
Cheney would have lowered the odds of success.
As a sitting Vice President in time of war,
Cheney was riding high on war fervor. He might
have fought subpoenas all the way to the Supreme
Court. In any case, the statute of limitations
now prevents his inclusion. Another oddity is
how quickly the original plaintiff lawyers,
Schiffrin & Barroway, rushed to settle the case
for a meager sum. They negotiated a settlement
of $6 million when the victimized investors,
including many pension funds, had lost an estimated
$3.1 billion. For no obvious reason, Richard
Schiffrin also met privately with Cheney's personal
lawyer, even though Cheney was not part of the
case.
The
settlement was delayed when the presiding federal
judge had to withdraw, belatedly revealing that
his children owned Halliburton stock. His replacement,
Judge Barbara Lynn, observed sharply that the
lawyers would collect a third of the $6 million
settlement. Thousands of injured investors would
get pennies.
By
the summer of 2004 the accumulated oddities
provoked an uproar in the courtroom. One lead
plaintiff, the Archdiocese of Milwaukee, protested
that its lawyers had been kept in the dark while
the settlement was negotiated and that the outcome
fell far short of a just amount. Schiffrin found
himself before Judge Lynn, arguing the weakness
of his clients' claim. "What made your case
so bad so fast?" she asked him. "That's what
I don't understand.... I find this proceeding
peculiar because...all the sudden the great
case becomes positively rank." The judge tossed
out the settlement. This could hardly harm aggrieved
investors, she explained, since they weren't
getting much anyway. That decision set the stage
for Lerach's firm to take control of the case
and to push the claims much more ambitiously.
Trial
lawyers like Lerach have an obvious incentive
to create well-publicized cases. Damaging revelations
turn up the heat of public opinion and push
defendants toward settling for bigger dollars.
Halliburton says it intends to defend "vigorously"
and dismisses Lerach's accusations as meritless--but
that's what defendants usually say at this point.
Lerach has an additional motive. A high-profile
case against the Veep could help protect him
against retribution by Congress. The US Chamber
of Congress and financial forces are building
bipartisan support for another legislative assault
on trial lawyers in financial cases, crippling
the ability of pension funds, universities and
foundations to win redress. Lerach is the prime
target. And his former firm, Milberg Weiss,
is under indictment for allegedly paying clients
to act as lead plaintiffs in class-action suits.
Halliburton,
meanwhile, is back on top. HAL soared on booming
oil prices to $82 (before dropping back a bit),
helped by the notorious no-bid contracts to
rebuild war-ravaged Iraq. Cheney, one might
say, did his part. War and rumors of war in
the Middle East produce rising oil prices. Noncompetitive
contracts eliminate the problem of cost overruns,
since US taxpayers will pick up the tab. It
seems the era of corporate corruption did not
end with Enron, WorldCom and the other scandals.
It relocated to Washington.
