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.