Risk & Compliance

SEC Settles with Halliburton

Two former finance executives are charged with repeatedly failing to disclose accounting practice changes during Dick Cheney's tenure as CEO.
Stephen TaubAugust 4, 2004

The Securities and Exchange Commission brought charges against Halliburton Co. and two former finance executives for failure to disclose a change to its accounting practice during a period when vice president Dick Cheney served as chief executive officer.

Halliburton also agreed to pay a $7.5 million penalty to settle civil charges for not fully cooperating with the SEC’s probe.

The two executives charged were former CFO Gary Morris and one-time controller Robert Muchmore Jr. According to SEC officials, Halliburton and Muchmore settled the enforcement actions by agreeing to cease and desist from committing or causing future securities law violations. Muchmore also agreed to pay $50,000.

However, the enforcement action against Morris remains unsettled, and was filed in U.S. District Court in Houston.

SEC documents allege that Morris and Muchmore were responsible for hiding a 1998 accounting change that was suppose to be reported in Halliburton’s public filings. The failure to disclose the change, for six quarters, caused the company’s 1998 and 1999 stated income to be materially misleading. The duo also played key roles in the preparation and review of quarterly earnings releases and analyst teleconference scripts that included the affected income figures, said the SEC.

“They were, therefore, also responsible for the absence in the releases and scripts of any clarifying reference to the accounting change or its impact,” according to the commission.

Giving weight to the letter — and spirit — of the law, Harold Degenhardt, administrator of the SEC’s Fort Worth office noted that “Important information bearing on a company’s results should be disclosed in a clear and timely way, even if those results are calculated in accordance with Generally Accepted Accounting Principles (GAAP).” Accordingly, the penalty against Halliburton, “serves as yet another reminder that the SEC will not tolerate lapses by companies that delay or hinder the Commission’s investigative processes,” added Spencer Barasch, enforcement head in the commission’s Fort Worth office.

Halliburton executives claimed the lapses in cooperation had delayed the documentation of information needed to expedite the SEC investigation. In a prepared statement, company officials stressed that the SEC did not determine that the company departed from GAAP and did not find errors in accounting or fraud. “Therefore there will be no restatement of prior period financial statements.”

“We are pleased to bring closure to this matter,” said Dave Lesar, chairman, president and CEO of Halliburton. As a result of the settlement, the company restated second quarter 2004 results to record an additional $7.5 million in general corporate expense.

The commission said that Cheney provided sworn testimony and cooperated willingly and fully in the investigation.