Cheney and HAL

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.