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George and Dick's Amazing Corporate Misadventures

by Stephen PizzoSpecial to CorpWatch
July 10th, 2002

Pres. George W. Bush and Vice President Dick Cheney. Photo: Associated Press/Eric Draper
Associated Press/Eric Draper

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