A federal judge in Dallas rejected a US$6 million settlement proposal on Friday in a securities class-action lawsuit against the Halliburton Co, expressing concern that it was neither fair nor adequate.
Had the judge approved the settlement, which was agreed to in June by Halliburton and three of the four lead plaintiffs in the case, it would have concluded a suit filed by investors who contended that questionable accounting practices from 1998 to 2001 artificially inflated the company's shares.
In her opinion, Judge Barbara Lynn of US District Court for the Northern District of Texas wrote: "Since the court is not satisfied that the settlement proposed is fair, reasonable and adequate and since the court has concerns both about the manner in which settlement was reached, and the terms of the proposed settlement, the court will not approve it at this time."
The judge directed the participants to try to resolve the case by Dec. 3.
Neil Rothstein, a partner at Scott & Scott, who represents the Archdiocese of Milwaukee Supporting Fund, a Halliburton shareholder and the lead plaintiff that did not agree to the settlement, said: "We are very satisfied that the judge recognized the fiduciary duty due to the class. This settlement was improperly arrived at and completely inadequate as we have said all along."
Wendy Hall, a Halliburton spokeswoman, said in a statement: "We believe that we offered a fair amount of money to settle claims that, in our opinion, have no merit. We intend to get this resolved in the judge's ordered mediation and if that does not happen, we are prepared to go forward with the trial and fully expect our position to be vindicated."
Lynn said that the settlement, struck by the lead counsel Schiffrin & Barroway, was negotiated deficiently. For example, Richard Schiffrin, a partner at the firm, conducted negotiations to settle the case without informing the Archdiocese Fund, the judge wrote.
The lead counsel also met in secret with the counsel for Halliburton without the knowledge of all the lead plaintiffs or the executive committee overseeing the case, she wrote.
Schiffrin did not return a phone call seeking comment.
The judge noted in her opinion that the US$6 million payment proposed by the settlement would have been reduced by administrative costs of US$1.5 million, lawyers' fees of US$1.5 million and expenses of US$117,239. Therefore, more than 800,000 potential claimants would share a settlement of less than US$3 million.
If all the potential class members submitted claims, the court calculated that an investor with 100 shares would recover about US$0.62.
In Washington, Halliburton came under fire from Democrats, who used a partisan forum to accuse Republicans of ignoring problems related to the company's military contracts to protect its former chief executive, Vice President Dick Cheney.
Senator Byron Dorgan of North Dakota, chairman of the Democratic Policy Committee, convened a hearing-like forum with several witnesses, including Marie deYoung, a former Halliburton employee who said some contracts not only wasted taxpayer money but threatened "military readiness and operational security."
Hall said many of the issues raised by the Democrats had been aired at previous forums, including a House Government Reform Committee hearing in July.
"We leave it to the judgment of others," she said, "as to whether the makeup of today's speakers was designed to allow a thorough or objective review of our work in support of the US troops."
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