KBR, Halliburton Accused in Investor Suit of ‘Reign of Terror’

By Cary O’Reilly |

KBR Inc. and Halliburton Co., two of the largest contractors to the U.S. military, were accused by a pension-fund shareholder of paying bribes, making false claims and operating as criminal enterprises.

Executives of both companies engaged in a “reign of terror” that involved paying bribes in Nigeria, overcharging the U.S. government for services, accepting kickbacks, engaging in human trafficking and concealing a rape of an employee, according to the complaint filed yesterday by a pension fund.

“Under defendants’ watch, and supposedly under their control and supervision, the companies were permitted to engage in conduct so notorious that the name ‘Halliburton’ has become virtually synonymous with ‘corruption,” the Policemen and Firemen Retirement System of the City of Detroit pension fund said in its complaint in state court in Houston.

The defendants include KBR Chief Executive Officer William Utt and six board members. Also named as defendants are Halliburton CEO David Lesar and 14 of that company’s current and former executives and board members, including former Chevron Corp. CEO Kenneth Derr and Robert Crandall, past chairman of American Airlines.

Heather Browne, a spokeswoman for KBR, said the company hadn’t been served with the complaint and couldn’t comment on specific accusations.

‘Unfounded Allegations’

“It appears however that the lawsuit is based on unfounded allegations,” she said.

Cathy Mann, a Halliburton spokeswoman, declined to comment on the accusations.

“The lawsuit has just been filed,” Mann said in an e- mail. “Halliburton has not yet been served and has not evaluated the contents, so it’s inappropriate to comment at this time.”

KBR, based in Houston, and former parent Halliburton agreed in February to pay $579 million to resolve U.S. criminal and regulatory charges related to accusations it bribed Nigerian officials to win more than $6 billion in contracts to build a liquefied natural-gas project.

In total, KBR, through a joint venture with four other contractors, paid more than $182 million to its agents for the purpose of bribing Nigerian officials, according to the suit.

Internal Controls

“The size of the multimillion dollar bribes and the magnitude of the cover-up evidence a total lack of internal controls at Halliburton and KBR to detect fraud and wrongdoing,” according to the complaint.

Albert “Jack” Stanley, KBR’s former chairman, pleaded guilty in September 2008 to participating in the bribery scheme. He hired consultants to bribe Nigerian officials and admitted receiving more than $10 million in kickbacks.

Halliburton fell 11 cents to $21.79 in New York Stock Exchange composite trading yesterday. The shares have risen 20 percent this year. KBR rose 60 cents, or 3.6 percent, to $17.39.

The Detroit pension fund has held Halliburton stock since 1998 and KBR since December 2006.

The case is Policemen and Firemen Retirement System of the City of Detroit v. Cornelison, 09-2998, District Court of Harris County, Texas (Houston).