The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: A summary of today's news; the latest on the arrest on corporate fraud charges of five former executives of a top cable television company; a "how we live" report from Ray Suarez on an effort to build affordable housing in Vermont; a look at the securities investigation of Halliburton, the oil services company once headed for Vice President Cheney; and John Merrow's seventh trip to chronicle the lives and times of several new public school teachers in New York City.

NEWS SUMMARY

JIM LEHRER: Wall Street snapped its losing streak with a huge rally today. The Dow Jones Industrial average soared a near-record 488 points, climbing back over 8,000 to close at 8,191, a gain of more than 6%. The NASDAQ rose 61 points, about 5%, to close at 1290. Analysts say investors were reacting partly to new moves to hold corporate executives accountable. And one of those moves was the arrest today of five former top executives in a major federal fraud case. They included John Rigas, the founder of Adelphia Communications, the nation's sixth largest cable television company, and two of his sons. Two other former company officials were also taken into custody. All were accused of conspiracy to loot Adelphia, which is now under federal bankruptcy protection. We'll have more on this story in a moment. House and Senate negotiators agreed today on a compromise corporate fraud bill. Among other things, it would create new and longer criminal penalties for fraud and document shredding, and it would set up an independent, private board to oversee the accounting industry. At a late-afternoon hearing, both Republicans and Democrats praised the deal.

REP. MICHAEL OXLEY: We now have a bill that is superior to legislation passed by either body. The language we consider today will make the capital markets more accountable to investors, increase the transparency that serves as a foundation of our markets and make corporate executives who break the law and abuse the public trust pay severely. Jail time for corporate executives who commit crimes is clearly in order.

SEN. PAUL SARBANES: Traditionally our markets have been the fairest, the most efficient and the most transparent in the world. We intend to see that they merit that reputation. It s obviously time to act decisively. And I'm pleased that we will shortly send to the President a strong bill and that we now can look forward to this legislation becoming law.

JIM LEHRER: The full House and Senate could vote on the bill tomorrow or Friday. The Securities and Exchange Commission is looking into accounting practices at AOL/Time Warner. The company announced the fact-finding inquiry late today. At issue is whether AOL, the on-line service, improperly counted revenue in several transactions. CEO Richard Parsons said the company had followed generally accepted practices. The chairman of the Securities and Exchange Commission, Harvey Pitt, came under new fire today. The "New York Times" reported he had asked Congress to make his office a cabinet-level post and raise his pay. Pitt had already been criticized for his previous ties to the accounting industry. Today, the Senate's top Democrat called again for his resignation, but a White House spokesman dismissed that idea.

SEN. TOM DASCHLE: For him now of all times to be asking for cabinet-level status when you've got people out there who are so concerned about their own livelihoods, concerned about whether they're going to survive financially, you've got businesses that are on the rocks, this is further proof and a clear illustration of why it is many of us feel the time has come for a change in that position.

ARI FLEISCHER: The President is focused on the strengthening of the SEC's structure and ability to fight fraud, that the Congress just passed. Now this is Washington D.C., and there are always going to be people who want to look past the accomplishments and look past the action and focus on division and search for a scalp. That is so much part of the old Washington that this President is determined to change because this President is going to focus on solutions.

JIM LEHRER: A spokeswoman at the SEC said Pitt wanted greater status for the agency in order to reassure investors and not to promote himself. The House of Representatives headed toward a vote late tonight to expel Congressman James Traficant. In April, a federal court in Cleveland convicted the Ohio Democrat of bribery, racketeering, and tax evasion. It takes a two-thirds vote to expel a member of the House. That's happened only four times before. The House voted last night to ease some sanctions on Cuba. The actions would let American tourists travel to the island and allow Cuban-Americans to send more money back to relatives. The Senate has already agreed to relax travel restrictions. President Bush has threatened to veto a broader spending bill if it includes such provisions. Hundreds of firefighters battled today to save ancient sequoia trees in California. A wildfire near Kernville has covered 50,000 acres since Sunday, much of it in the giant sequoia national monument. Flames are within two miles of a grove named the "Trail of 100 Giants." Some of the trees there are up to 1,500 years old, 220 feet tall, 20 feet across. And that's it for the News Summary tonight. Now it's on to the Adelphia arrest, affordable housing, the Halliburton investigation, and those teachers in New York.

FOCUS ADELPHIA FRAUD?

JIM LEHRER: The high profile arrests in the Adelphia case. Spencer Michels narrates our beginning.

SPENCER MICHELS: Federal officials said today the cable TV giant had perpetrated one of the most extensive financial frauds ever. They said its executives used the public firm as "their own private piggy bank." The Pennsylvania-based company provides cable service to six million customers in 29 states. Last month, Adelphia filed for Chapter 11 bankruptcy, after admitting it inflated revenues and earnings by $3 billion. Around the same time, founder and former CEO John Rigas resigned. Today's charges were filed against Rigas and four other former executives, including two of his sons. They're accused of securities, wire, and bank fraud-- criminal violations that carry a maximum prison sentence of 100 years. This morning, Deputy Attorney General Larry Thompson laid out the government's case, appearing with lawyers from the Securities and Exchange Commission.

LARRY THOMPSON: The complaint alleges that members of the Rigas family that controlled Adelphia systematically looted the corporation. In less than four years, the complaint alleges, they stole hundreds of millions of dollars and through their fraud caused losses to investors of more than $60 billion. Beginning in 1999, the complaint alleges that the defendants caused the company to borrow more than $2.28 billion that it concealed from the public by intentionally omitting it from its required SEC filings. The complaint also alleges that the defendants fraudulently reported the company's operating results by creating millions of dollars in fake management fees, entering into sham transactions with other countries-- other companies, excuse me-- and outright falsifying the numbers of cable television and Internet subscribers. Defendant CEO John Rigas has lent himself more than $66 million out of company funds, without making required disclosures. The defendants used the company to spend $13 million on building a golf course on defendant CEO John Rigas' land. The defendants forced the company to pay for airplanes and luxury apartments for the personal use of the Rigas family members, unrelated to Adelphia's business.

SPENCER MICHELS: Beyond today's charges, Adelphia and its executives are the subject of state investigations, as well as dozens of shareholder lawsuits.

JIM LEHRER: More now from Ron Grover of "Businessweek" Magazine. Welcome.

RON GROVER: Thank you, Jim.

JIM LEHRER: First, give us some history of Adelphia. How did it begin?

RON GROVER: Well, it actually began in a small town in Pennsylvania called Coudersport, Pennsylvania. John Rigas owned a movie theater that he bought for $70,000 or so and borrowed some more money. I think it was $200-$300 to buy a cable system and started buying more and more cable systems, borrowing more and more money. This was in the '50s. And by about the mid '80s he suddenly was a very large cable company and bought the largest cable company in Los Angeles among others.

JIM LEHRER: Los Angeles is its major city, is that right?

RON GROVER: It's its largest city, correct.

JIM LEHRER: Largest city. Where are some of the other cable systems that it owns?

RON GROVER: Well, it owns a great many cable systems in upstate New York, Buffalo, for instance. It also owns the Buffalo Sabers. It owns a lot of cable systems in upstate Pennsylvania. It owns a great deal of cable systems in Ohio and in California, northern California, a few as well.

JIM LEHRER: Now Adelphia's progress... Adelphia's growth, that's a familiar pattern, is it not -- within the television industry, a family owning....

RON GROVER: Oh, yeah.

JIM LEHRER: Tell us about that.

RON GROVER: Well, yeah, they're one of many families that own cable systems. You have the Roberts Family in Philadelphia owns Comcast. You have the Dolans in New York own Cable Vision. More recently you've had Paul Allen, the millionaire from Microsoft, buy a cable system so you do have a lot of companies in the hands of individuals or in the hands of families. And that's given a great deal of concern to Wall Street, who wonders if there's another one of these likely to happen. I should say that none of the companies I just mentioned have been accused of anything. They're perfectly honest. As far as I can tell, they're very clean. But the perception that there's another one out there permeates Wall Street right now.

JIM LEHRER: Is it... the reason for this, this kind of progress or the way they grew is because it was very cheap at the very beginning and nobody realized they were going to become such big deals later on?

RON GROVER: Oh, sure. In the '50s, '60s, even '70s, cable television was not very well known as a way of delivering television and you could buy up these franchises in small cities all over the country for just about nothing. And what they did is they borrowed a great deal of money because they would have trucks, they would have telephone poles. They would have all the kinds of things you need for a cable system that you could use as collateral and the cable industry is complete with companies that have done this forever. Many, many companies did the same thing.

JIM LEHRER: Of course, Adelphia was a family company but yet it was publicly owned, right? The stock traded. That's the problem.

RON GROVER: That is the problem. The problem is they treated it -- I think you said at the top of this -- as their own personal piggy banks. There was a lot of shareholder money that they took for their own. They took loans using public shareholder company assets as collateral. And they were off to the races in pretty grand fashion.

JIM LEHRER: How did they get away with this? How did they allegedly get away with this? By the way, I didn't say that about the piggy bank. That's what the assistant attorney general said. But, go ahead.

RON GROVER: How did they get away with it?

JIM LEHRER: Yes.

RON GROVER: For one thing they were a small company. For another thing is they didn't disclose it. As you know for many, many years, disclosures like that went unchallenged. They just... they toiled away in this fairly small city, Coudersport, Pennsylvania, away from public view, and the company kept growing and growing and growing. What we've learned I think is when stock prices go up, when earnings go up, you can hide a lot on your balance sheet.

JIM LEHRER: These are enormous numbers though.

RON GROVER: They're staggering. I don't think I've seen anything like it. The SEC says hundreds of millions of dollars. I believable it will go to maybe a billion dollars. It's quite amazing.

JIM LEHRER: Yeah. And as Spencer Michels said in our little set-up piece, I mean, the possibilities here for punishment against the Rigases and their associates is also enormous at this point, is it not, already?

RON GROVER: It's like 30 years per count and there's several counts. I think he said 100 years. That's probably right. There's a million dollars per count. They're looking at tens of twenty millions of dollars in fines. It doesn't even count the fact that everything that they earned they ill earned they're going to have to return as well.

JIM LEHRER: Is there a message here do you believe the way this thing was handled today that the Justice Department or the government saying... is saying, "you do this kind of thing, there's going to be handcuffs and jail time" this a new message?

RON GROVER: Well, I think that is the message. I think this is a godsend for somebody like President Bush, who has been trying to say we're going to get serious. And this is a way of showing the rest of corporate America we are getting serious. There's handcuffs. You're going to be sent off to jail. And I would suspect there's going to be more of these to come.

JIM LEHRER: I noticed that the judge today set bail at $10 million each for these five people. That also sends a message, does it not?

RON GROVER: I think it does. Oh, I think it does. I think this is all about sending a message that the Bush Administration, the SEC intends to get tough. I don't know where they're going to get the $10 million by the way. I know they're very wealthy men but I believe they're pretty leveraged to the hilt, and they ve returned a lot of money, so a few of these guys may spend some time in prison even before the trial.

JIM LEHRER: I reported in the News Summary a moment ago, Ron, that the market went way up today, you know, almost to 500 points and some of the analysts were saying on Wall Street that the reason was because those five people were arrested today. Does that make sense to you?

RON GROVER: Well I guess it makes some sense. I mean, I don't think that that's going to continue very long. They've got, you know, one guy in jail. There's still a lot of companies out there with earnings -- one set of people in jail rather. There's a lot of companies with earnings still to be reported and I think there's still a fair amount of concern that there are things out there we don't know about. AOL/Time Warner today announced they're under SEC investigation or it's an informal investigation. But, you know, AOL/Time Warner is a very large company that was not on the radar until recently. And I think somewhere down the road there is going to be some concern that there's more like this out there.

JIM LEHRER: But you're not saying, to go back to what you said earlier, you don't think this is specific to the cable television industry. You believe it's more general than that, is that right?

RON GROVER: Oh, yeah. We've had the telecommunications industry, Tyco; we've had all kinds of companies; the oil industry; Halliburton I think you mentioned at the top. There's a heck of a lot of companies out there that have balance sheets and transactions that are suspicious. And so I'm not so sure one set of arrests as huge as these arrests were is going to put all those fears on to the back burner.

JIM LEHRER: I hear you. Ron Grover, thank you very much.

RON GROVER: Thank you, Jim.

SERIES HOW WE LIVE

JIM LEHRER: Now a report on "how we live," our ongoing look at how and where Americans live their lives. Tonight, Ray Suarez looks at the quest for affordable housing in Vermont.

RAY SUAREZ: Burlington, Vermont: Population 39,000. A charming university city on the shores of Lake Champlain, it's been ranked one of the nation's most livable areas--

if you can afford a place to live.

BRENDA TORPY, Burlington Community Land Trust: What we're experiencing here is a land gentrification problem: The cost of land, the cost of building, the access to land in our state has far exceeded what working people can afford.

RAY SUAREZ: Burlington is one of a growing number of metropolitan areas nationwide, where the median-earning household can't afford the median-priced house. The vacancy rate for rentals hovers around 1%. It's even harder to buy a house. Demand has driven up prices, and wages haven't kept pace. Vicky Philby's experience is typical: Mother of two, she works in a pharmacy; her husband is unemployed. A new landlord decided to renovate the three bedroom house they had rented for $500 a month for three years, and triple the rent.

VICKY PHILBY: Once the renovations were done, he was going to increase the rent to $1,500 per month.

RAY SUAREZ: Is $1,500 in your price range?

VICKY PHILBY: Not at all. I couldn't even come close to it.

RAY SUAREZ: Philby finally found a smaller two-bedroom house for almost twice her old rent. She's not alone. Many middle income people can't afford to live here-- police officers, firefighters, and teachers, people who do a lot of the day-to-day work that makes the city run. Art teacher Jean Waltz is a single mother of two. Her search for a house has been frustrating.

JEAN WALTZ: Even though I have a full- time job, and even though I have great credit, and all this kind of stuff, I still couldn't afford it.

RAY SUAREZ: The federal government defines an affordable home as one that costs no more than 30% of family income. That means, in the Burlington area, the family has to earn about $15 an hour, or $32,600 a year, to afford a two-bedroom apartment. And there aren't many of those, so working people can end up living in motels and shelters.

SPOKESPERSON: Ooh.

RAY SUAREZ: Julie and Mike Ohrenbach, and their son, Dakota, waited two months for a room at a shelter. Julie works at a grocery store, and Mike is a security guard.

JULIE OHRENBACH: There is nothing. Most of the even the one bedrooms that I've seen, they want as much as $750, $800.

RAY SUAREZ: And that would just be a strain for you guys.

JULIE OHRENBACH: Yeah.

RITA MARKLEY, Committee on Temporary Shelter: We just bought this facility to meet the needs of ever- growing number of families in trouble.

RAY SUAREZ: Rita Markley runs Burlington's emergency housing program. She says the Ohrenbach's predicament is common and disturbing.

RITA MARKLEY: The most dramatic shift we've seen in our demographics is the number of families who are homeless. And even more remarkably, half of them are working. They're families who have both parents employed, andthey still can't make it in this housing market.

RAY SUAREZ: A family earning the local median household income of about $50,000 only qualifies for a home costing in the neighborhood of $135,000. Real estate agent Carol Hinkel:

CAROL HINKEL, Real Estate Agent: The single family homes under $200,000 are really rare to find. We have virtually no new homes being built.

RAY SUAREZ: That's the basic problem: Pricey homes are being built; affordable ones, no. Here's what's driving shortages and high costs in the Burlington area. Many nearby towns forbid duplexes, apartment houses, and single-family homes in the same neighborhood; ironically, the original pattern of the old New England Town Center. There are the expectations newcomers bring to Vermont, searching for that perfect place in the country. Developers have responded with homes on large lots, many ten acres in size, that eat up farmland and forest. And getting a building permit has made it difficult to build new, affordable housing. State land-use laws allow opponents of a project to hold it up for any reason. Brenda Torpy, a nonprofit developer of affordable housing, recently served on a housing task force.

BRENDA TORPY, Burlington Community Land Trust: We were looking at what was in the planning pipeline for the city, and of the 100... well, almost 200 projects proposed and in process, all but three have been appealed in planning. I feel there's something really broken in our process if you have these opportunities on the books for certain densities and people can stop you from building.

RAY SUAREZ: Juli Beth Hoover, the director of zoning and planning for South Burlington, blames the permit challenges for the affordable housing shortage.

JULI BETH HOOVER, South Burlington Zoning & Planning: When you can't bring a product to market without believing you are going to be in for extensive delays, permitting costs, unanticipated costs relating to that process, you're going to shoot for a housing product where you know that you'll be able to cover those costs in the end. That means that a lot of developers are choosing to... choosing only to develop things in the $200,000-plus range.

SPOKESMAN: We made a policy on that.

RAY SUAREZ: Developer Bob Marcellino wants to build 47 homes on an old farm. His building permit has been challenged by a neighboring condo association for over a year, and it could be held up four more. Marcellino says his projects' opponents often appeal on environmental grounds, when they're really trying to squeeze some other concession from the developer.

BOB MARCELLINO, Real Estate Developer: They want you to erase some units so that... their back yard, they won't see something in their back yard, or they want you to do a lot of additional landscaping for them. And it's just... it's a way to get something that they don't legally have a right to do, but they can take the permit process and use it because developers... you know, they know that it's going to be a year or more, and it's a better business decisions, sometimes, to just give them what they want.

RAY SUAREZ: Carol Barnard, president of the condo association, says she and her neighbors are concerned about the wetlands on the property, and the potential pollution of Lake Champlain from storm water runoff; and the planned homes are just too close.

RAY SUAREZ: The way this is designed, the fronts of these houses will be oriented away from your development toward the center of theirs.

CAROL BARNARD, Wellesley Grove Condo Association: Towards the center of theirs, but they'll be elevatedsix feet.

RAY SUAREZ: Ah.

CAROL BARNARD: They'll be, you know, looking down from the roadways, and so on and so forth. So, yeah, we'll have our backs to each other-- bedroom to bedroom/deck to deck.

RAY SUAREZ: Marcellino says the changes made to appease the condo owners have already upped the price of the homes.

BOB MARCELLINO: Instead of 47, had we been able to put 60 or 70 out there, then clearly those costs would have been divided among a bigger number, they would have been less per unit, and we could have delivered more units at an affordable range.

RAY SUAREZ: For Carol Barnard, the higher price tag is worth it.

CAROL BARNARD: I think most of us are willing to pay a little bit more to get something that's much better.

RAY SUAREZ: But Jim Doyle can't pay more. He manages a warehouse and delivers auto glass. His wife, Roseanne, is an accounts manager for a distribution company. They hunted for a house they could afford for three years, while living with their two daughters in an old trailer.

JIM DOYLE: We really felt like it was going to take a miracle.

ROSEANNE DOYLE: It was frustrating. It was very frustrating. You want to knock on people's doors and go, "How did you get in here? (Laughs) Did your family own this 100 years ago? Was it passed down to you?"

JIM DOYLE: That's exactly what it was.

RAY SUAREZ: The Doyles recently found an innovative solution at the Burlington Community Land Trust, a major local effort to create affordable housing. Under their sales agreement, they own their house; the Trust owns the land. In addition to a mortgage spelling out the unusual arrangement, the Doyles got a cash grant and a course in home ownership.

ROSEANNE DOYLE: They teach you budgeting; they teach you how to go about looking for a home, things to look for, financing, how to go through financing, and for some people who may have bad credit, they show you how to repair your bad credit.

RAY SUAREZ: If Jim and Roseanne Doyle sell, they keep their mortgage equity, but they share any profit with the Trust. Brenda Torpy is executive director of the Burlington Community Land Trust.

BRENDA TROPY: The only thing in the ground lease that's different from ownership is that when they go to sell, they can't take all the profit with them, and we can make it affordable a second time around. And they get 25% of the inflation, which is just the market appreciation. So let's say you bought a house at $80,000 and then when you go to sell it appraises at $100,000, you get the $5,000 profit plus what you put into it, and the $15,000 goes to subsidize the next buyer.

RAY SUAREZ: The Doyles say they don't mind the restrictions. They aren't motivated by profit.

ROSEANNE DOYLE: We're not in this to make money. This is not an investment property for us. This is a home. This is where we want to stay.

JIM DOYLE: That's right.

ROSEANNE DOYLE: You know, for our children to grow up, and for us to retire.

RAY SUAREZ: The Burlington Community Land Trust was created in 1984, during another period of escalating housing prices, when Burlington's leaders chose not to build large public housing projects or subsidize landlords. The Trust focused first on revitalizing and creating affordable homes in an old, rundown neighborhood.

BRENDA TROPY: We're taking houses that are foreclosed, and boarded up, and beyond repair, and fixing them up. We're adding to the value of properties around.

RAY SUAREZ: By applying what it's learned to a wider range of projects, the Trust has become an inventive and flexible force in the Burlington area, developing community centers, housing co-ops, downtown rental apartments, and commercial space. Next, they're building rental housing on the pricey waterfront. Still, Mayor Peter Clavell admits their efforts are hardly enough.

MAYOR PETER CLAVELL, Burlington, VT: I think we're making some progress and some inroads, but I'll be the first one to say there's much more work ahead of us in this community and across the country. (Applause)

RAY SUAREZ: The Trust is celebrating its successful partnership with 14 other nonprofit housing groups in the rehab of a single foreclosure, now owned by art teacher Jean Waltz.

JEAN WALTZ: It takes a lot of nonprofits to get a low income, single mom a house.

BRENDA TROPY: Every one we do is a victory, but for every one we do we should be doing 100. You have 14 partners to do this one single-family home and just a layering of programs. It's a wonderful victory when you have to go through all those hoops to create one home. But is it smart? Is it efficient?

RAY SUAREZ: Torpy and her colleagues worry that their programs, as innovative and successful as they are, can't reverse the trend when the demand for housing is so deep and broad. Even building at a brisk pace, Northwest Vermont will be short 10,000 housing units over the next decade.

JIM LEHRER: Still to come on the NewsHour tonight, Halliburton accounting, and becoming a teacher.

FOCUS HALLIBURTON ACCOUNTING QUESTIONS

JIM LEHRER: The Halliburton story. Margaret Warner has that.

PROTESTORS: Hey, hey! Ho, ho! Corporate greed has got to go!

MARGARET WARNER: Demonstrators greeted Vice President Dick Cheney at a Pennsylvania fundraiser last week, protesting his role in a controversy involving the Halliburton Corporation. The Dallas-based Halliburton is one of the world's largest oil services, construction, and engineering firms, and Cheney was its CEO from 1995 to 2000. He left the company to become George W. Bush's running mate in August of 2000, and that month, he sold all of his Halliburton stock at $52 a share for a profit of $18.5 million. Now questions are being raised about Halliburton's revenue figures for some of the years Cheney was CEO, and whether they artificially inflated the company's profits and stock price.

In 1998, Halliburton changed accounting methods on disputed claims against customers. Instead of waiting until the claims were settled, Halliburton booked the anticipated revenues in advance. Those claims revenues amounted to $89 million in 1998, making the company look more profitable than it would have seemed under the old method. Halliburton didn't publicly disclose the new accounting practice until more than a year later. With the approval of its accountant, Arthur Anderson, Halliburton continued using the new accounting method in subsequent years. In May, after news reports about the matter, the Securities and Exchange Commission opened an investigation into Halliburton's accounting practices. SEC Chairman Harvey Pitt has said the Vice President will not receive any special treatment.

HARVEY PITT: Halliburton has said it is being investigated, and I will tell you as I have said before: No one in this country gets a pass. I don't care what their status is, I don't care what their prestige is; anyone who violates the law has to be held accountable.

MARGARET WARNER: On July 10, a legal watchdog group, Judicial Watch, sued Cheney and Halliburton on behalf of investors alleging fraudulent accounting practices had inflated the company's revenues by $445 million from 1999 to 2001.

LARRY KLAYMAN: This company, Halliburton, engaged in what we alleged in a complaint filed this morning to be fraudulent securities practices -- fraudulent securities practices not exactly identical, but similar to the practices of Enron and Global Crossing, and that because of these accounting practices, profits were overstated.

MARGARET WARNER: The White House and Halliburton have both called the lawsuit without merit. The Vice President has declined to comment about the suit or the SEC probe. Democrats in Congress have pressed Cheney to address the issue, saying his refusal is fueling the loss of investor confidence.

SEN. JOSEPH LIEBERMAN: The Vice President's disclosures regarding Halliburton have been non-existent, and I just think that the longer this goes on, the worse it's going to be for the Administration. But more to the point, the worse it's going to be for our economy.

MARGARET WARNER: At a press conference with the Polish President last week, President Bush said he believed Cheney would be exonerated.

PRESIDENT GEORGE W. BUSH: I've got great confidence in the Vice President. He's doing a heck of a good job. When I picked him, I knew he was a fine business leader and a fine, experienced man. And he's doing a great job. That matter will run its course, the Halliburton investigation, and the facts will come out at some point in time.

MARGARET WARNER: In the two years since Cheney left the company, Halliburton's stock has plummeted more than 75% to under $12 a share.

MARGARET WARNER: For more we're joined by Robert Bryce, an Austin-based journalist who covers the energy industry. He's currently writing a book on Enron; Vincent Love, a certified public accountant and fraud examiner; and Donald Langevoort, a former special counsel at the Securities and Exchange Commission -- he is now professor of law at Georgetown University. Welcome to you all and Professor, beginning with you. Oh, no, excuse me. Let me first go to Robert Bryce.

Robert Bryce, first lay out for us the kind of business Halliburton is in and what these disputed claims were about. How does that fit into their business?

ROBERT BRYCE: Sure. Halliburton is an oil field services and construction company. They do everything from seismic analysis in the oil field to building big construction projects. They built Enron Field in Houston, for instance, the baseball stadium that's now known as Minute Maid Park. The issue with their accounting involves some cost overruns or discrepancies or disagreements rather between Halliburton and some of its clients. And rather than waiting until the discrepancies or the disagreements over those costs were resolved, Halliburton went ahead and booked those revenues as though... as receivables. In other words they counted those revenues on their financial statements immediately. That's very similar to the type of accounting that Enron used. It's called mark-to-market accounting. What's interesting about it is that Halliburton up until '98 had been using accrual accounting, which is the standard cost accounting method, but in this one segment of their business they used mark to market and that's what raised all the red flags.

MARGARET WARNER: Now, the statements show and Halliburton has said that in '98 these extra revenues amounted to something like $89 million, and they had sales that year of $17 billion. What else was going on at Halliburton at the time in '98 that might have made even this modest an increase interesting or important to investors?

ROBERT BRYCE: Well, it's important because in '98 the world oil industry was in a world of hurt. They were... oil prices were depressed. Drilling activity was very low. And Halliburton had also just completed a merger with Dresser Industries. So the company was eager to show any revenue that it could and by using mark to market on this one small segment of their business, they were able to add $90 million or $89 million in '98. And then in '99, it was $98 million. And then in 2000 it was $113 million. So again that's a relatively small figure compared to the tens of billions or over $10 billion that they were counting in revenue but it still counted significantly in terms of their profit statement.

MARGARET WARNER: What has the company said about why they changed accounting methods and then why they didn't disclose this change until actually the year 2000 when they were filing their annual report on the '99 revenue?

ROBERT BRYCE: Right. The company has said that the change was fairly small. The numbers were small and therefore were not really important. But it is interesting to note that why didn't they disclose it in '99 given that they....

MARGARET WARNER: You mean why did they?

ROBERT BRYCE: Well, no, they made the change in '98 but the disclosure didn't come out until March of 2000. So I think the SEC wants to know why wasn't that change... why weren't investors notified rather in the 1999 annual report about this change.

MARGARET WARNER: And what are they saying about why they made the change at all?

ROBERT BRYCE: They're saying that it's defense I believe, that this is... defensible, that this complies with generally accepted accounting practices and that it is defensible.

MARGARET WARNER: And then finally, what, if anything, has the company said about Dick Cheney's involvement when he was CEO in this decision, whether he approved it or knew about it?

ROBERT BRYCE: Right. Their statements thus far have been that apparently Mr. Cheney was not involved. But I think that that clearly won't be known until he's questioned by the SEC.

MARGARET WARNER: All right. Now, Professor Langevoort, your turn. What is it that the SEC will really be looking for here?

DONALD LANGEVOORT: Well, first of all, we'll start with the accounting change. Was it fully disclosed? I think in the back of the mind, in the front of the mind of the examiner is going to be, was the company applying a heavy dose of cosmetics here in order to let investors think this was a more profitable company than it really was? If you can get to that motive, we want to keep our stock price high, you're coming close to securities fraud. That's what they're going to be looking for. Or is it innocent?

MARGARET WARNER: Vincent Love, as an accountant, first of all is this method of accounting that they changed to, is it a legitimate acting method?

VINCENT LOVE: Yes, it is an acceptable method of accounting for these long-term contracts for these claims. I think I just want to go back to the beginning. In 1997, in the notes to the financial statements, they disclosed that these claims and disputed change orders were not recorded in revenue until the settlement was final. In 1998, they dropped out that line, and they didn't disclose that. In 1999 in their annual report, they then disclosed that they accounted for these claims and on an accrual basis and they looked at the probability of collection. And if it was probable that they would collect based upon their past experience that they were going to record the revenue in that year. That was what was wrong here. They did not disclose what had happened in 1998. And the amount was material when you looked at the bottomline in '98 and what else was going on.

MARGARET WARNER: I gather there is also an issue about -- at least with the SEC about whether you can change accounting methods. Is that right -- that there's certain tests for whether it's permissible to do so or not?

VINCENT LOVE: Well there's a preferability test. Is it a preferable method? And generally, it would be if you can get a reasonable estimate of the collectible amount. They had a past history, and their claim is based on their past history and analysis of the claims that they could accurately estimate what they would receive on those claims. Now they had already expensed the money that they spend on the cost overrun....

MARGARET WARNER: Let me interrupt you right there. I think maybe we're getting a little technical here.

VINCENT LOVE: Sure.

MARGARET WARNER: Let me just ask the Professor here. All right, if you're at the SEC and you're looking now at this whole set of transactions and the accounting and you said they're going to want to get to intent -- was the intent to defraud or was it simply a legitimate change? What are they going to have to actually do to get to that?

DONALD LANGEVOORT: Well, they're going to, first of all, assess whether there really was a history with respect to collection on these cost overruns.

MARGARET WARNER: In other words, had they been successful in the past collecting them?

DONALD LANGEVOORT: And the clearer that is, the more likely it is there's no fraud. On the other hand, you also want to see whether there was pressure coming from above. And we all know who "above" is -- and that s Halliburton -- to come up with numbers even if they're artificial. Those questions you only get by deposition. You have to call witnesses and ask about those kinds of conversations in the company. There may be innocent explanations but you're going to have to ask.

MARGARET WARNER: And, Vincent Love, if you were doing a fraud investigation here, what would you be looking at? What would you add to that?

VINCENT LOVE: Well, I'd like to try and find contemporaneously prepared documents to show what the intent was. Was this really a preferable method? What caused them to make the change, and what did they do to support their estimate of what was going to be collectible on those claims.

MARGARET WARNER: All right. And then, Professor, if you were also trying to determine whether the failure to disclose was kind of an innocent mistake... first of all, how firm is this law about having to disclose a change in accounting method?

DONALD LANGEVOORT: In the last year the SEC has made a big point of wanting companies to be more forthcoming when they change estimates, change assumptions. It's not that firm. I doubt you could sustain a serious fraud claim simply on non-disclosure of this change. That would be a lower-level violation.

MARGARET WARNER: And how would the SEC go about trying to figure out again, as I asked earlier - whether it was innocent or not?

DONALD LANGEVOORT: Again by reference to were these records there that justify it? Is there a reasonable basis or does that just seem to be caving into some kind of pressure from the market or from your executives?

MARGARET WARNER: And, Vincent Love, what is your view of the question of the disclosure?

VINCENT LOVE: Well, there certainly was a failure to disclose in 1998. And I think it was a material failure to disclose, but it's going to be up... the SEC is going to complete their investigation. They ve got competent attorneys and lawyers. They'll get to the bottom of this if we give them the time to do it.

MARGARET WARNER: Now, how are they going to then look into... he wasn't Vice President then, but Dick Cheney's role?

VINCENT LOVE: Well, they would have to look at what Mr. Cheney, Vice President Cheney, knew at the time. And you have to look at the records to see if he as chairman of the board was aware of the change that was being made, reviewed the financial statements, and focused on the fact that they did not disclose the change in accounting.

ROBERT BRYCE: If I can jump in here for just one point

MARGARET WARNER: Yes.

ROBERT BRYCE: -- and that is regarding the disclosure, and I think it would --particularly if we're talking about small investors and now they're the ones who have really been hit hard by a lot of these non-disclosure issues -- is when the change was finally disclosed in the 1999 annual report that was published in March of 2000, that report was over 40,000 words long and this change, this -- the disclosure of the accounting method change only amounted to about 80 words. So you had to be a very sharp- eyed investor to even notice the change because it is also -- it's not in plain English or not in plain English for me -- perhaps for the accounting professors -- but certainly not for me.

MARGARET WARNER: But that, Professor, wouldn't be considered the fault of Dick Cheney or Halliburton, would it?

DONALD LANGEVOORT: Not likely.

MARGARET WARNER: Under SEC Investigations or standards or whatever?

DONALD LANGEVOORT: No. You would have to show some unusual set of facts that showed from above there was a direction to get me some good numbers.

MARGARET WARNER: Now, finally-- and I'll ask all three of you-- do you expect the question of his sale of his own stock to come into play? What would it take to have that come into play?

DONALD LANGEVOORT: It's going to come into play. The SEC is very clear that if they can show a stock price drop preceded by senior executive sales, they're looking into it. The question is how material was this? Would there be a stock price drop based on this information alone or are we really talking about stock price drop that came later because of facts that arose well after the sales occurred?

MARGARET WARNER: But Robert Bryce, there's been no confirmation here even suggesting that they're doing an insider trading investigation on his stock sale, is there?

ROBERT BRYCE: No, there has not. The only observation that I think that I could make in that regard is that when Mr. Cheney sold in August and garnered $52 or so per share, it was interesting in the weeks prior to his being named as the Vice Presidential nominee Halliburton stock was in the $40s. When he was named, the stock price surged very quickly. So the company clearly been benefited from at least the perception that their former CEO might be in the White House.

MARGARET WARNER: All right. And, Mr. Love?

VINCENT LOVE: I would just like to say one thing. There was no disclosure in 1999 of the change. All they simply stated was what the new policy was. They didn't say "and this is a change from 1997." And they didn't disclose the impact on the financial statements. And it's true that you had to read those financial statements very carefully to see that one line. In the... and where management discussed the changes from one year to the other, they never mentioned in 1998, SEC's filing that part of the increase in revenue was related to this change.

MARGARET WARNER: And last quick question to you, Professor: Would the SEC to do a complete investigation do you think have to interview the Vice President?

DONALD LANGEVOORT: Yes.

MARGARET WARNER: All right. We'll leave it there. Thank you all three very much for helping us try to figure this out.

UPDATE MAKING THE GRADE

JIM LEHRER: Finally tonight, an update on making teachers. Two years ago, we first met a group of new teachers in New York City's public school system. They'd been recruited from other walks of life to help cope with a severe shortage of certified teachers. John Merrow, our special correspondent for education, returned to PS-25 at the end of this school year to see how they fared. And here is his report.

JOHN MERROW: In the summer of 2000, New York City was desperate.

DEMONSTRATORS: Stop robbing our children.

JOHN MERROW: It was under court order to staff its neediest schools with certified teachers, but it couldn't find enough veteran teachers who were willing to accept the challenge. Under the leadership of schools Chancellor Harold Levy, the city created a peace corps-like program and invited people from outside teaching to apply.

AROLD LEVY, Chancellor, New York City: The great fear when we started this program was that, a, we wouldn't get the best and, b, we wouldn't be able to keep them once the two years were up.

JOHN MERROW: That summer, 320 idealistic but untrained men and women were accepted into the new teaching fellows program. Among them were Dana Goldberg, Renee Cason, Janice Wright, Sarah Costello, and Jack Nastasi. After just six weeks of summer training, they were assigned to Public School 25, a tough K-8 school in Brooklyn with 750 students. We followed them through the highs and lows of their first year on the job.

DANA GOLDBERG: Welcome to second grade. Who's excited about second grade?

TEACHER: Do you think that people recycle more in Michigan?

STUDENTS: Yes.

STUDENTS: No.

TEACHER: Discuss it in your groups, and I want to hear why.

STUDENTS: No.

JACK NASTASI: I'm trying to learn your names. I'm trying to make it fun. I can ask you each your name and you have to tell me your names. I have a list of your names up there. I'm trying to make it fun.

TEACHER: See how it goes all the way around. It moves one tick every second.

STUDENTS AND RENEE CASON: 11, 12, 13, 14, 15, 16.

DANA GOLDBERG: What did you do? What happened?

STUDENT: I can tell the story.

DANA GOLDBERG: No, it's not about you. It's about them. What happened?

JOHN MERROW: In return for a two-year commitment to teaching at an underachieving school, the fellows were enrolled in a master's degree program with the school system paying the tuition. This June, 272 of the original 320 teaching fellows completed their second year of teaching.

TEACHER: I had a very good year this year. It was different from last year. I almost don't remember that much about last year now that I've had this group for this whole year.

DANA GOLDBERG: I came in the second year definitely a little wiser. Not as naive, not as innocent. Maybe even a little jaded.

TEACHER: When I came back the second year, I made sure not to make the same mistakes I made the first year, laid down the law, made rules that I thought would make the classroom more effective.

JACK NASTASI: Yeah, it was a good year. I mean, I'm still walking and living, so it was a good year.

JOHN MERROW: Renee Cason's first year had been especially tough.

RENEE CASON: Brett, let go.

RENEE CASON: It was one of the worst years of my life. Last year really, like, immobilized me. I didn't know if this was going to work. I knew I was going to finish, but I was, like, I don't know to really control children.

JOHN MERROW: This year, you taught first grade. Last year, you were in fourth grade. How was your year this year?

RENEE CASON: To be honest, it was like a new beginning for me. I had to start all over again.

JOHN MERROW: This year, Renee figured out new ways to keep her students' attention.

RENEE CASON: This year, I think was successful. I got to see children really improving their reading. All my children moved up a level.

RENEE CASON: Excellent, Martina.

JOHN MERROW: We asked Chancellor Levy to come to P.S.-25 to meet the five teaching fellows.

HAROLD LEVY: If you had to pinpoint one thing that we could do to make the school better or to make your experience better, what would it be?

TEACHER: Well, it would have to be giving the kids an outlet to talk to, because I think that there's a lot of discipline issues in the school, in any school. And if these kids had somebody they can work it out with on their own time or even on school time, then their discipline issues would kind of go down a little.

TEACHER: You're very frustrated the first year, feeling like there are all these issues in the schools and several things that just go beyond teachers, for any of the teachers, you know, supplies, funding, social service for these kids, helping them to get through the day, because they need to deal with other issues instead of just coming to school. They have a lot that they come to school with.

HAROLD LEVY: One of the great frustrations for me has been trying to figure out how to get more resources in the school as well. I mean, it's such a nightmare because every time you make the pitch that there's not enough money, people say, "oh, $12 million it's enough." And, of course, it's not.

DANA GOLDBERG: I think it's very important that fellows are with other fellows in their school. We have each other, and quite honestly, if we didn't, some of us might not be here right now.

HAROLD LEVY: Tell me about the kids. Tell me... have you enjoyed it from that point of view?

DANA GOLDBERG: Absolutely. That's the best part of the whole job, are the kids.

JACK NASTASI: I can't get enough of them. Even when I want to leave at 4:00 or 5:00, I end up going to the school yard and playing basketball or doing something.

JOHN MERROW: The teaching fellows program has expanded rapidly. In its second year, it recruited 1,150 fellows; in its third year 16,000 men and women applied and 2,000 have been accepted into the program. But expansion has brought criticism.

JOHN MERROW: What about on-the-job training? There are those people who say that is cruel and unusual punishment for the kids.

HAROLD LEVY: As well as people who say it's cruel and unusual for teachers. It's not just on-the-job training. It's a lot more than that, as you know. It's getting them early, training them in the best and most rigorous way they can. This is really not an alternative career or an alternative teacher model. What it really is, is a very traditional teacher model, what we've just gone after alternative career changers. In other words, we're giving these people the same thing that teachers who take traditional masters of education get, and the universities that have worked with us have provided a very rigorous program.

JOHN MERROW: But Chancellor Levy, they start teaching in September having had a few weeks of training. Is that fair to the kids?

HAROLD LEVY: I think because we've chosen as carefully as we have, I think it winds up being a strong teaching force, and that they are capable of doing it.

JOHN MERROW: The teaching fellows also defend on-the-job training.

JACK NASTASI: We have to. I mean, there's no other way to learn how to do anything without hands on.

DANA GOLDBERG: We learned a lot more through our experience teaching than actually sitting in a classroom and learning how to teach.

TEACHER: I think that they learned just as much or more than they would have learned with anybody else.

HAROLD LEVY: They're terrific. They're so uplifting and they just make you feel like we can do it, we can get through this, and we can make sure that everybody knows how to... every child knows how to read.

TEACHER: Every time you read something, what do I make you do? You do questions?

STUDENT: Book report.

TEACHER: Okay, a book report, or we're going to...

STUDENT: Write about it.

TEACHER: Write about it.

HAROLD LEVY: My bet, John, was that we could find people who were dedicated to teaching, to doing something that was altruistic beyond just doing it for money. And it's so clear to me that we found them.

JOHN MERROW: The city may have found them but after getting a free master's degree and completing their two-year commitment, would they stay? Renee?

RENEE CASON: Well, next year I'm going to be back and I'm going to teach second grade.

JOHN MERROW: Janice?

JANICE WRIGHT: I'll be teaching fifth grade again next year here in this school, yes.

JACK NASTASI: Same room, same class number. Sixth grade, yeah.

JOHN MERROW: Back for a third year?

JACK NASTASI: Third year.

TEACHER: I'll be teaching fifth grade again in the same room.

JOHN MERROW: Dana Goldberg will also be teaching next year.

DANA GOLDBERG: Good job guys. Give yourselves a pat on the back.

JOHN MERROW: But in a public school in Chicago.

DANA GOLDBERG: It's definitely going to be really hard for me, because I've had these two years now. And I think it's going to be really hard for them also.

JOHN MERROW: New York City began the teaching fellows program in desperation. It simply didn't have enough teachers, and it was willing to gamble that dedicated people could learn to teach on the job. As far as the city is concerned, the gamble has paid off.

RECAP

JIM LEHRER: Again, the major developments of this day: Wall Street snapped back with a huge rally. The Dow Jones Industrial Average soared a near-record 488 points. The NASDAQ rose 61. Five former top executives of Adelphia Communications were charged in a major federal fraud case. And House and Senate negotiators agreed on a compromise corporate fraud bill. We'll see you online, and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.