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George
and Dick's amazing corporate misadventures
By Stephen Pizzo
Reprinted with permission from CorpWatch
Editors note: This story appeared at www.corpwatch.org
on July 10
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
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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.
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1987: With its new high-profile director in place, Harken
proceeded with a $25 million stock offering underwritten by a
Little Rock, Ark., brokerage house, Stephens, Inc.
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1987-89: Despite the fact that Harken experienced
multi-million dollar 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.
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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
percent 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.
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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 owed more than $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 file 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 eight 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 the 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 losses 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 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 leak 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 July 9, 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.
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