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Accounting Charge Dropped Against Former Halliburton CFO

Posted on: Friday, 9 September 2005, 00:00 CDT

Sep. 9--A Houston judge dismissed one of two civil charges against a former Halliburton chief financial officer related to an SEC complaint that the company failed to promptly disclose a 1998 accounting change that raised its earnings.

The decision drops a Securities Exchange Commission charge against former CFO Gary Morris that claims he aided and abetted Halliburton in filing the financial reports.

"None of these allegations concern or establish Morris' knowledge of wrongdoing," Judge Lee Rosenthal said in his opinion.

Morris must still contend with a complaint accusing him of being negligent in allowing the financial statements to be released without the full accounting disclosure.

The Houston-based company settled similar SEC claims filed against it in August 2004 without admitting guilt. The company paid a $7.5 million fine, however, because it failed to fully cooperate in the investigation, SEC officials said.

Former treasurer Robert Muchmore was also charged at the same time. He agreed to pay a $50,000 fine as part of a settlement with the SEC, without admitting guilt.

Morris chose to fight the charges and filed motions to dismiss them.

The SEC complaint accused the men and the company of failing to disclose in 1998 a material change in the company's accounting policies. The change itself was proper under accounting rules, but the SEC claims investors were not told of the change for more than a year.

The accounting issue involved cost overruns on construction projects. Prior to the second quarter of 1998, Halliburton recognized income from claims against overruns only in the quarter when the claims were actually resolved. The newer method recognized claims that were considered likely to be collected.

The accounting change led to a 46 percent overstatement in reported pretax income for 1998, the SEC complaint said.

According to Rosenthal's opinion, in order to move forward with the claims that Morris aided in the release of false information, the SEC complaint needed to show that there was a securities violation, that Morris had an awareness of his role in the violation and knowingly gave substantial assistance.

"In this case the SEC has alleged no facts showing that the defendant knew or was severely reckless in not knowing of his participation in a fraudulent scheme," Rosenthal wrote.

Morris' case is to go to trial in May. A status conference is scheduled for Monday.

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Source: Houston Chronicle

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