STEPHEN S. STEPHENS, LYLE LIONBARGER AND DEANNA J. LIONBARGER as trustees for the LW & Deanna J. Lionbarger Family Trust Dated 06/25/96,

Plaintiffs,

HALLIBURTON COMPANY, D/B/A

HALLIBURTON ENERGY SERVICES;

RICHARD B. CHENEY;

DAVID J. LESAR;

RAY L. HUNT;

ROBERT L. CRANDALL;

CHARLES J. DIBONA;

LAWRENCE S. EAGLEBURGER;

WILLIAM R. HOWELL;

JAMES LANDIS MARTIN;

JAY A. PRECOURT;

CECIL J. SILAS;

DOUGLAS L. FOSHEE;

JERRY H. BLURTON;

CEDRIC BURGHER;

ROBERT CHARLES MUCHMORE, JR.;

ANDERSEN;

ANDERSEN WORLDWIDE;

ARTHUR ANDERSEN, LLP;

TERRENCE EDWARD HATCHETT;

and DOES 1-20, inclusive,

Defendants.

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Civil Action No. 3-02CV1442-L

COMPLAINT;

DEMAND FOR JURY TRIAL

NATURE OF THE ACTION

1. This action arises from a fraud perpetrated by directors, officers, and accountants of Halliburton Company, d/b/a Halliburton Energy Services (“Halliburton”) against shareholders of and potential investors in Halliburton securities and the integrity of the securities market.

JURISDICTION

2. Jurisdiction exists under 28 U.S.C. § 1332 because the parties are of diverse citizenship and the amount in controversy, including punitive and exemplary damages, exceeds $75,000.00, exclusive of interest and costs. On information and belief, punitive and exemplary damages are highly likely to be awarded to each Plaintiff in amounts exceeding $75,000.00 due to the egregiousness of the fraudulent acts, omissions, and scheme set forth in detail below.

VENUE

3. Venue is proper in this district under 28 U.S.C. § 1391(a)(2) because a substantial part of the events or omissions giving rise to the claims occurred here.

PLAINTIFFS

4. Plaintiff Stephen F. Stephens (“Stephens”) resides in and is a citizen of and domiciled in the State of Indiana and at relevant times bought and/or sold Halliburton securities. Due to the egregiousness of the fraudulent acts, omissions, and schemes set forth below, Stephens seeks and expects to recover, in addition to compensatory damages, at least $200,000.00 in punitive and exemplary damages from each defendant pursuant to Texas Civil Practice & Remedies Code § 41.008(b).

5. Plaintiffs Lyle W. Lionbarger and Deanna J. Lionbarger are husband and wife, residents and citizens of and domiciled in the State of New Mexico, and at relevant times bought and/or sold Halliburton securities as trustees of the LW and Deanna J. Lionbarger Family Trust Dated 6/25/96 (collectively, the “Lionbargers”). Due to the egregiousness of the fraudulent acts, omissions, and schemes set forth below, the Lionbargers seek and expect to recover, in addition to compensatory damages, at least $200,000.00 in punitive and exemplary damages from each defendant pursuant to Texas Civil Practice & Remedies Code § 41.008(b).

THE CORPORATE DEFENDANT

6. On information and belief, Halliburton is a Delaware corporation with its principal place of business in Dallas, Texas, and does business as Halliburton Energy Services.

7. On information and belief, on all filings with the United States Securities and Exchange Commission (the “SEC”) Halliburton lists its business and mailing address as 3600 LINCOLN PLZ, 500 N AKARD ST, DALLAS TX 75201

8. On information and belief, a substantial part of the events and omissions set forth below occurred in, or originated from, Halliburton’s principal place of business in Dallas, Texas.

9. On information and belief, less than ten years before the filing of this action, on or about July 25, 1995, in United States v. Halliburton Co., U.S.D.C. Criminal Case No. 95-CR-157-ALL (S.D. Texas), Halliburton pled guilty to illegally exporting goods to the terrorist nation of Libya in violation of 50 U.S.C. §§ 1702 and 1705, 31 C.F.R. §§ 550.202, 550.208, 550.409, and 18 U.S.C. § 2, was fined $1.2 million on conviction, and is a convicted felon.

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DIRECTOR AND OFFICER DEFENDANTS

10. Defendant Richard B. Cheney (“Cheney”) is currently the Vice-President of the United States, domiciled in the State of Texas or Washington, D.C., a resident of Washington, D.C., and was the Chief Executive Officer of Halliburton from 1995 into 2000. Cheney is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

11. Defendant David J. Lesar (“Lesar”) is domiciled in the State of Texas and a resident of Plano, Texas. Lesar joined the Board of Directors of Halliburton in 2000 and is currently the Chairman of the Board, the President, and the Chief Executive Officer. He was formerly Executive Vice President and the Chief Financial Officer from 1995 until 1997 and became the President of Halliburton in 1997. Prior to joining Halliburton, Lesar had been a partner in Defendant Andersen, Defendant Andersen Worldwide, and/or Defendant Arthur Andersen, LLP. Lesar is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

12. Defendant Ray L. Hunt (“Hunt”) is domiciled in the State of Texas, a resident of Addison, Texas, joined the Board of Directors of Halliburton in 1998, and is and/or was at relevant times the Chairman of the Compensation Committee and a member of the Audit and the Management Oversight Committees. Hunt is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

13. Defendant Robert L. Crandall (“Crandall”) is domiciled in the State of Texas, a resident of Houston, Texas, joined the Board of Directors of Halliburton in 1986, and is and/or was at relevant times the Chairman of the Nominating and Corporate Governance Committee and a member of the Audit, the Compensation, and the Management Oversight Committees. Crandall is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

14. Defendant Charles J. Dibona (“Dibona”) is domiciled in the State of Virginia, joined the Board of Directors of Halliburton in 1997, and is and/or was at relevant times a member of the Compensation and the Management Oversight Committees. Dibona is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

15. Defendant Lawrence S. Eagleburger (“Eagleburger”) is domiciled in Virginia, joined the Board of Directors of Halliburton in 1998, and is and/or was at relevant times a member of the Audit, the Compensation, the Management Oversight, and the Nominating and Corporate Governance Committees. Eagleburger is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

16. Defendant William R. Howell (“Howell”) is domiciled in the State of Texas, a resident of Houston, Texas, joined the Board of Directors of Halliburton in 1991, and is and/or was at relevant times the Chairman of the Management Oversight Committee and a member of the Audit and the Compensation Committees. Howell is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

17. Defendant James Landis Martin (“Martin”) is domiciled in the State of Colorado, joined the Board of Directors of Halliburton in 1998, and is and/or was at relevant times a member of the Nominating and Corporate Governance and the Management Oversight Committees. Martin is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

18. Defendant Jay A. Precourt (“Precourt”) is domiciled in the State of Utah, joined the Board of Directors of Halliburton in 1998, and is and/or was at relevant times a member of the Compensation and the Management Oversight Committees. Precourt is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

19. Defendant Cecil J. Silas (“Silas”) is domiciled in the State of Oklahoma, joined the Board of Directors of Halliburton in 1993, and is and/or was at relevant times the Chairman of the Audit Committee and a member of the Compensation and the Management Oversight Committees. Silas is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

20. Defendant Douglas L. Foshee (“Foshee”) is domiciled in the State of Texas, a resident of Houston, Texas, and is and/or was at relevant times Executive Vice President and the Chief Financial Officer of Halliburton. Foshee is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

21. Defendant Jerry H. Blurton (“Blurton”) is domiciled in the State of Texas, a resident of Houston, Texas, and is and/or was at relevant times Vice President and the Treasurer of Halliburton. Blurton is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

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22. Defendant Cedric Burgher (“Burgher”) is domiciled in the State of Texas, a resident of Houston, Texas, and is and/or was at relevant times Vice President of Investor Relations for Halliburton. Burgher is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

23. Defendant Robert Charles Muchmore, Jr. (“Muchmore”) is domiciled in the State of Texas, a resident of Plano, Texas, and is and/or was at relevant times a Vice President, the Principal Accounting Officer, and the Controller of Halliburton. Muchmore is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

24. On information and belief, Defendant Does 1 through 10 are past or present directors, officers, managing agents, and/or other employees or agents of Halliburton, whose identities are currently unknown, but who committed, aided, abetted, participated in, and/or furthered the fraudulent acts, omissions, and scheme set forth below. On information and belief, none of these Doe Defendants is domiciled in the same state as any Plaintiff. Plaintiffs will seek leave of court to identify these Does by their proper names and capacities when that information is ascertained.

25. Defendants Cheney, Crandall, Dibona, Eagleburger, Howell, Hunt, Lesar, Martin, Precourt, Silas, Foshee, Blurton, Burgher, Muchmore, and Does 1 through 10 are collectively called the “Director and Officer Defendants.”

26. On information and belief, on dates currently unknown, the Director and Officer Defendants secretly entered into an agreement, combination, and conspiracy with each other and the defendants named below, to commit, aid, abet, participate in, and further the fraudulent acts, omissions, and scheme set forth below, all with intent to mislead Halliburton’s shareholders, potential investors, and the securities market as to Halliburton’s true financial condition and the value of Halliburton’s securities.

ACCOUNTANT DEFENDANTS

1. On information and belief, Defendant Andersen is either a partnership or other type of unincorporated association consisting of member firms within “the Andersen global client service network.” On information and belief, at all relevant times Andersen described and promoted itself as a single, integrated, full-service, professional business enterprise comprising “one firm” with “one voice” and a “shared heritage and common values and vision.” On information and belief, Anderson does business and is found in Dallas, Texas, and was at all relevant times one of the most sophisticated international accounting, auditing, and management consulting firms in the United States and the world, with expertise in all areas of Halliburton’s business. Before the recent bankruptcy of Enron, Andersen enjoyed an excellent reputation; Andersen’s involvement with auditing, SEC filings, and securities offerings bestowed the imprimatur of legitimacy, confidence, and stability on its many clients, including Halliburton. Andersen is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below. Plaintiffs will seek leave of court to amend this pleading to name constituent members of Andersen after discovery into the exact nature of Andersen, members, alter ego issues, and sham transaction issues.

2. On information and belief, Defendant Andersen Worldwide is a corporation, a partnership, or another type of unincorporated association consisting of member firms within “the Andersen global client service network.” On information and belief, at all relevant times Andersen Worldwide described and promoted itself as a single, integrated, full-service, professional business enterprise comprising “one firm” with “one voice” and a “shared heritage and common values and vision.” On information and belief, Anderson Worldwide does business and is found in Dallas, Texas, and was at all relevant times one of the most sophisticated international accounting, auditing, and management consulting firms in the United States and the world, with expertise in all areas of Halliburton’s business. Before the recent bankruptcy of Enron, Andersen Worldwide enjoyed an excellent reputation; Andersen Worldwide’s involvement with auditing, SEC filings, and securities offerings bestowed the imprimatur of legitimacy, confidence, and stability on its clients, including Halliburton. Andersen Worldwide is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below. Plaintiffs will seek leave of court to amend this pleading to name constituent members of Andersen Worldwide after discovery into the exact nature of Andersen Worldwide, its members, alter ego issues, and sham transaction issues.

3. On information and belief, Defendant Arthur Anderson, LLP is a limited liability partnership, a member of “the Andersen global client service network,” does business and is found in Dallas, Texas, and was at all relevant times one of the most sophisticated international accounting, auditing, and management consulting firms in the United States and the world, with expertise in all areas of Halliburton’s business. On information and belief, at all relevant times Arthur Andersen, LLP described and promoted itself as a single, integrated, full-service, professional business enterprise comprising “one firm” with “one voice” and a “shared heritage and common values and vision.” Before the recent bankruptcy of Enron, Arthur Andersen, LLP enjoyed an excellent reputation; Arthur Andersen, LLP’s involvement with auditing, SEC filings, and securities offerings bestowed the imprimatur of legitimacy, confidence, and stability on its clients, including Halliburton. Arthur Andersen, LLP is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

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4. On information and belief, Andersen, Andersen Worldwide, and Arthur Andersen, LLP are alter egos of each other in that they now and at all relevant times (a) held themselves out to the public as a single, integrated, full-service, professional business enterprise comprising “one firm” with “one voice” and a “shared heritage and common values and vision”; (b) completely dominated and controlled each other’s assets, operations, policies, procedures, strategies, and tactics; (c) failed to observe corporate formalities; (d) and used and commingled the assets, facilities, employees, and business opportunities of each other, as if those assets, facilities, employees, and business opportunities were their own -- all to such an extent that any adherence to the fiction of the separate existence of any of these defendants distinct from the others would be inequitable, would permit egregious wrongdoers to abuse a corporate, limited liability partnership, and/or similar privilege of limited liability, if any, and would promote injustice by allowing these defendants to evade liability or veil assets that should be attachable.

5. For convenience, in light of the foregoing relationships among them, Defendants Andersen, Andersen Worldwide, and Arthur Andersen, LLP are collectively called “AA” below.

6. On information and belief, on dates and/or during a period that is currently not precisely known but appears to have commenced in or about 1998, AA made strategic business decisions to transform itself from a traditional, independent, and objective accounting and auditing firm with acknowledged responsibilities to the public, into a very aggressive, pro-active, pro-client, advisory firm committed to promoting client success through value creation. On information and belief, the AA model of client success through value creation was restated at length by three AA partners, on behalf of AA, in Cracking the Value Code: How Successful Businesses Are Creating Wealth in the New Economy, and summarized as follows:

Value creation – that is, future value captured in the form of increased market capitalization – is how successful businesses are creating value in the New Economy....

In the pages that follow, you will find a new set of tools that we have developed to help you create value in the New Economy [i.e. increased market capitalization]. It is called Value Dynamics, and it is based, in part, on an intensive three-year, 10,000-company research project by professionals at Arthur Andersen.

7. On information and belief, on or about January 10, 2001, AA appointed Joseph F. Berardino to be its new chief executive officer. In a press release announcing Mr. Barardino’s new appointment, AA reiterated its collective “Cracking the Value Code” vision as follows:

Arthur Andersen’s vision is to be the partner for success in the new economy. The firm helps clients find new ways to create, manage and measure value in the rapidly changing global economy. With world-class skills in assurance, tax, consulting and corporate finance, Arthur Andersen has more than 77,000 people in 84 countries who are united by a single worldwide operating structure that fosters inventiveness, knowledge sharing and a focus on client success.

8. On information and belief, AA’s very aggressive, pro-active, pro-client business strategy and management-consulting philosophy of fostering “inventiveness” and promoting client success through value creation as measured by increased market capitalization, explained in Cracking the Value Code and reaffirmed in the foregoing press release, had already been adopted and implemented for numerous AA clients prior to the events set forth below.

9. On information and belief, the fraudulent acts, omissions, and scheme set forth below were substantially the result of AA’s very aggressive, pro-active, pro-client business strategy and management-consulting philosophy of fostering “inventiveness” and promoting client success through value creation as measured by increased market capitalization. On information and belief, if AA had performed the more traditional roles of independent and objective accountant and auditor, then the fraudulent acts, omissions, and scheme below would not have occurred in the first place or would have been exposed and stopped much earlier.

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10. On information and belief, Defendant Terrence E. Hatchett (“Hatchett”) is domiciled in Texas and a resident of Houston, Texas, and was at relevant times the lead AA auditor on the Halliburton account. On information and belief, Hatchett was a direct participant, aider and abetter, and/or co-conspirator in the fraudulent acts, omissions, and scheme set forth below. Hatchett is sued herein under Texas state law as a direct participant, aider and abettor, and co-conspirator in the fraudulent acts, omissions, and scheme set forth below.

11. On information and belief, Defendant Does 11 through 20 are past or present partners, principals, officers, managing agents, and/or other employees or agents of AA, whose identities are currently unknown, but who committed, aided, abetted, participated in, and/or furthered the fraudulent acts, omissions, and scheme set forth below. On information and belief, none of these Doe Defendants is domiciled in the same state as any Plaintiff. Plaintiffs will seek leave of court to identify these Does by their true names and capacities when ascertained.

12. Defendants AA, Hatchett, and Does 11 through 20 are collectively called the “Accountant Defendants” below.

13. On information and belief, an extremely close relationship has existed for many years between AA and Haliburton at the business level, and/or between the partners or principals of AA and the key management personnel of Halliburton on a personal and social level. For example, on information and belief, at least one former audit partner or principal of AA has become a director and/or officer of Halliburton, and Lesar and Hatchett at all relevant times were close personal friends of Cheney and other Director and Officer Defendants.

14. On information and belief, AA was continuously engaged by Halliburton for many years, until April 2002, to provide “independent” accounting, auditing, and management consulting services, tax services, examination and review of SEC filings, audits, and reviews of financial statements included in Halliburton’s SEC filings, including audited and unaudited information, and annual reports.

15. On information and belief, AA’s relationship with Halliburton went far beyond “independent” auditing services to include both internal and external auditing and accounting, management consulting, and extensive, active involvement in the materially incomplete, misleading, and fraudulent reporting and disclosure of Halliburton’s financial condition and/or the fraudulent acts, omissions, and scheme set forth below.

16. On information and belief, as a result of the myriad of services rendered to Halliburton, AA had continual access to and knowledge of Halliburton’s inside corporate, business, and financial information, including inter alia relevant facts about Halliburton’s financial condition and/or the fraudulent acts, omissions, and scheme set forth below.

17. On information and belief, as a result of AA’s expertise, extremely close working relationship with Halliburton, constant interaction with Halliburton, and detailed knowledge of and access to all relevant documents and information, at all relevant times AA knew full well that it was a direct participant, aider and abettor, and co-conspirator in a massive scheme to mislead and defraud Halliburton shareholders, potential investors, and the securities market as to inter alia Halliburton’s true financial condition and the value of Halliburton’s securities.

18. On information and belief, AA received millions of dollars in accounting, audit, management consulting, and advisory fees during the fraudulent activities set forth below.

19. On information and belief, on dates that are currently unknown but appears to have commenced no later than 1998, the Accountant Defendants secretly entered into an agreement, combination, and conspiracy with each other and the Director and Officer Defendants to commit, aid, abet, participate in, and further the fraudulent acts, omissions, and scheme set forth below, all with the intent to keep Halliburton as a client and continue reaping multi-million dollar fees.

COMMON ALLEGATIONS

20. At all relevant times Halliburton has provided products, maintenance, engineering, and construction services to energy, industrial, and governmental customers through two groups: (a) the Energy Services Group provides services and products for the exploration, development, and production of oil and gas, and “integrated solutions” to energy companies, ranging from the initial evaluation of producing formations to drilling, production, and well maintenance; and (b) the Engineering and Construction Group provides diverse engineering and construction services to energy, industrial, and governmental customers in more than 100 countries worldwide. For these activities, Halliburton routinely enters into long-term construction and other contracts.

21. Until late 1990's, Halliburton normally entered into contracts on a cost-plus basis, which provided for payment of all costs actually incurred, whatever they were, plus a small profit margin over costs. Starting in the late 1990's, Defendants started receiving more fixed-price contracts, which do not guarantee any profit margin to Halliburton in the event of cost overruns and/or change orders. Such fixed-price contracts require Halliburton to negotiate and/or to sue for payment of cost overruns and change orders. The resulting disputes may take months or years to resolve and their outcome cannot be foreseen with any degree of reliability. Nonetheless, Defendants, in agreement, concert, and conspiracy with each other, improperly decided to start recognizing at least part of the speculative revenue from disputed claims even while the disputes were still unresolved and uncertain (the “Change in Accounting Principle”).

22. On information and belief, the Change in Accounting Principle was adopted and implemented, with the knowledge and consent of all Director and Officer Defendants and all Accountant Defendants, pursuant to AA’s very aggressive, pro-active, pro-client strategy and management-consulting philosophy of fostering “inventiveness” and promoting Halliburton’s success through value creation as measured by increased market capitalization. On information and belief, Cheney was a strong proponent of and participant in AA’s foregoing strategy and philosophy within Halliburton. On information and belief, Cheney used his official position and influence to persuade the other Director and Officer Defendants to consider, adopt, and implement AA’s foregoing strategy and philosophy as well as to hire Lesar away from AA in or about 1995. On Information and belief, Cheney even participated in an AA promotional video for AA, stating that “I get good advice, if you will, from their people based upon how we’re doing business and how we’re operating over and above just the normal by-the-books auditing arrangements.”

23. On information and belief, beginning in or about the fourth quarter of 1998 and without making disclosure to its shareholders or investors, Halliburton, the Director and Officer Defendants, and the Accountant Defendants changed, caused a change in, and/or went along with the Change in Accounting Principle so as to report at least $89 million of revenues to cover disputed, unresolved cost overruns on long-term construction projects, on the undisclosed and speculative assumption that its customers would pay the disputed amounts. At the time of this undisclosed Change in Accounting Principle, Halliburton was having a very difficult year with lower oil prices adversely affecting its business and was facing a net loss for the year, compared to substantial net income in the prior year. In addition, in the third quarter of 1998, before the Change in Accounting Principle was implemented, Halliburton acquired Dresser Industries, Inc. (“Dresser”), which had been besieged by hundreds of thousands of asbestos-related lawsuits, all of which further threatened the financial performance of Halliburton in 1998 and later years.

24. On information and belief, by virtue of the Change in Accounting Principle, Halliburton reported unbilled receivables of $98 million for the year ended December 31, 1999, unbilled receivables of $113 million for the year ended December 31, 2000, and unbilled receivables of $234 million for the year ended December 31, 2001, based on unapproved and disputed cost overruns, change orders, and unresolved claims, without disclosing the Change in Accounting Principle to book speculative revenue on unresolved claims and change orders not approved by its customers. The undisclosed Change in Accounting Principle and the revenue recognition arising therefrom violated Generally Accepted Accounting Principles (“GAAP”) because such revenues were not probable and could not be reliably estimated.

25. Statement of Position 81-1 is part of GAAP, governs accounting for long-term construction-type contracts, and provides in relevant part that:

Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that a contractor seeks to collect from customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price, or other causes of unanticipated additional costs. Recognition of amounts of additional contract revenue relating to claims is appropriate only if it is probable that the claim will result in additional contract revenue and if the amount can be reliably estimated.

26. On information and belief, the Change in Accounting Principle violated this provision of GAAP and constituted a material departure from both Halliburton’s long-standing accounting policies and the general industry-wide practice, which is not to record revenue on cost overruns, change orders, or related unresolved claims absent customer approval.

27. On information and belief, the net effect of the Change in Accounting Principle was to materially inflate Halliburton’s revenues and earnings from 1998 onward. For example, in the fourth quarter of 1998, the Company reported $175 million of pre-tax operating profits, more than half of which ($89 million) resulted from the undisclosed Change in Accounting Principle in violation of GAAP. On information and belief, under Halliburton’s previous, long-standing accounting practices, cost overruns would not be covered by the recognition of revenue, but would be recognized as losses, and revenue would not be recognized until Halliburton’s clients agreed to pay additional sums to cover Halliburton’s disputed claims or change orders.

28. The Change in Accounting Principle and its non-disclosure also violated GAAP principles in Accounting Principles Board Opinion (“APB”) No. 20, which provides that an accounting principle should not be changed unless it can be justified that the change results in an accounting treatment that is preferable:

The Board concludes that in the preparation of financial statements there is a presumption that an accounting principle once adopted should not be changed in accounting for events and transactions of a similar type. Consistent use of accounting principles from one accounting period to another enhances the utility of financial statements to users by facilitating analysis and understanding of comparative accounting data.

The presumption that an entity should not change an accounting principle may be overcome only if the enterprise justifies the use of an alternative acceptable accounting principle on the basis that it is preferable.

29. APB No. 20 further states that the nature and justification for a change in accounting principle should be disclosed in financial statements when the change is made:

The nature and justification for a change in accounting principle and its effect on income should be disclosed in the financial statements of the period in which the change is made. The justification for the change should explain clearly why the newly adopted accounting principle is preferable.

30. APB No. 20 requires a company making a change in accounting principle to disclose specifically “the effect of adopting the new accounting principle on income.”

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31. APB No. 20 defines a change in accounting principle to include a change from one generally accepted accounting principle to another, as well as a change in the method of applying a particular accounting principle:

A change in accounting principle results from adoption of a generally accepted accounting principle different from the one used previously for reporting purposes. The term “accounting principle” includes not only accounting principles and practices but also the methods of applying them.

...

Changes in accounting principle are numerous and varied. They include . . . a change in the method of accounting for long-term construction-type contracts . . . .

32. Halliburton’s change in accounting principle was not disclosed or justified in its financial statements, and the effect of the change on net income was not specifically disclosed as required by GAAP. Halliburton made no disclosure of the change in its 1998 Form 10-K. Subsequently, in its 1999, 2000, and 2001 Forms 10-K, Halliburton stated only that, “Claims and change orders which are in the process of being negotiated with customers for extra work or changes in the scope of the work are included in revenue when collection is deemed probable.” This statement violated GAAP because it did not reveal that the Change in Accounting Principle had occurred, nor did Halliburton try to justify the change, explain why it was preferable, or to disclose its effect on net income. Hence, Halliburton’s reported financial results and financial statements for 1998, 1999, 2000, and 2001 were materially false and misleading when made.

33. A change in an accounting principle is of such material significance to an informed investment decision that the SEC requires that a company making such a change file a letter from its independent accountants supporting the preferability of the accounting principle change in the first Form 10-Q to be filed by the company after the change. SEC Regulation S-X, Rule 10-01(b)(6). On information and belief, the Accountant Defendants did not provide, and Halliburton did not file, any such letter.

34. On information and belief, Defendants, in agreement, concert, and conspiracy with each other, directly or indirectly initiated, directed, participated in, aided and abetted, furthered, otherwise caused, and/or concealed the Change in Accounting Principle, the resulting financial fraud from 1998 into 2002, or related events, for the purpose of preserving their directorships and/or other positions with Halliburton, keeping their contracts with Halliburton, their income, compensation, and fringe benefits, supporting the value of their Halliburton securities, and/or concealing their participation in and liability for fraudulent reporting and activities.

35. The Accountant Defendants audited Halliburton’s financial statements for the fiscal year ended December 31, 1998 (the “1998 Financials”), and issued an unqualified audit report dated January 25, 1999, attesting to the accuracy and reliability of the financial statements in conformity with GAAP (the “1/25/99 Audit Report”).

36. Halliburton’s Form 10-K (Annual Report) for the fiscal year ended December 31, 1998, was filed with the SEC on March 23, 1999 (the “1998 10-K”). The 1998 10-K is a public record and included the 1998 Financials and the 1/25/99 Audit Report. The 1998 10-K was signed by Cheney, Hunt, Crandall, Dibona, Eagleburger, Howell, Martin, Precourt, Silas, and Muchmore.

37. On information and belief, the 1998 Financials, the 1/25/99 Audit Report, and the 1998 10-K were all provided not only to the SEC, but also, with the knowledge, approval, and consent of all defendants, to Halliburton shareholders, potential investors, securities analysts, the news media, and others who affect the securities market.

38. On information and belief, the Director and Officer Defendants and Accountant Defendants collaborated and worked together closely in preparing, finalizing, and filing the 1998 Financials, 1/25/99 Audit Report, and 1998 10-K, and knew the contents of those documents.