What did Dick Cheney know?

The US supreme court decided earlier this week that it will allow a nine-year-old lawsuit against Halliburton to proceed. The case isn't about Iraq, or even the Nigerian bribery scandal, but about asbestos and whether or not company management misled shareholders.

Most people assume that Halliburton made a fortune when Cheney, who had just left his previous job as secretary of defence, took over the company in 1995. Halliburton had, after all, just scored its first $1bn military logistics contract in war-torn Bosnia and Kosovo. But in reality, the company made a gigantic loss because of a very bad deal that Cheney made for Halliburton – by buying a company called Dresser Industries in 1998. All told, Halliburton paid out $2.8bn in cash because Cheney and his advisers had neglected to pay much attention to the asbestos liability of Dresser. The stock price of Halliburton rose from about $12 a share in 1996, to a high of $25, before plunging to about $7 a share in 2002.

A lawsuit filed in that year – which covers all investors who bought shares between 3 June 1999 and 7 December 2001 – alleges that Halliburton management misled investors about the potential asbestos liabilities. A New Orleans judge ruled last year that the lawsuit couldn't proceed as a class action (where a few people sue on behalf of a larger group they claim to represent) unless the plaintiffs could first show that the company's alleged misstatements had inflated the company's stock price.

On Monday, the supreme court overturned the earlier ruling and gave the shareholders permission to proceed. Chief Justice John Roberts wrote in his statement:

"The question presented in this case is whether securities fraud plaintiffs must also prove loss causation in order to obtain class certification. We hold that they need not."

Halliburton maintains that it does not believe it will have to pay out. "Halliburton has not accrued any amounts related to this matter because it does not believe that a loss is probable. Further, an estimate of possible loss or range of loss related to this matter cannot be made," the company said in a statement.

If the shareholders can prove that Cheney or his advisers knew about the liability and did not tell anyone, the company could be in deep trouble. On the other hand, if they did not realise that Dresser Industries was in financial trouble, it merely suggests that Cheney was a very bad businessman.

There is some evidence that the board was definitely not paying close attention at the time. A federal investigation of Halliburton's pension plans showed that the company had charged some costs of Halliburton's top bosses' pension and bonus plans to the workers' pension fund, spending about $2.6m in total between 1 June 1999 and 1 January 2004. Two such violations took place while Cheney was the company's CEO.

The company also failed to pay out a part of the pensions that was owed to employees who came to work at Halliburton when Cheney bought up Dresser. When the workers complained to investigators at the UD department of labour, Halliburton returned the money to the affected people and returned the money it had spent from the workers' pension funds.

But it is unlikely that Cheney will ever testify. He has, after all, wriggled out of testifying on the Nigeria bribery scandal, and nobody has ever brought charges against him for the much-commented-on war-profiteering in Iraq.

If Halliburton and its shareholders lost money at the time, not so Cheney. In the five years he worked at the company, he received $12.5m in salary. He also held $39m-worth of stock options when he quit the company in 2000 – a fortune for a man with no previous experience in running a multinational company. In addition, Halliburton's board of directors voted to award him early retirement when he quit his job, even though he was too young to qualify under his contract. That flexibility enabled him to leave with a retirement package, including stock and options, worth millions more than if he had simply resigned. Plus, Halliburton paid out Cheney an extra $1m during the time he served as vice-president.

Cheney cashed in his remaining stock options gradually, starting with selling 100,000 Halliburton shares in May 2000, for an immediate profit of $3m. In 2005, Cheney exercised most of what remained of his Halliburton stock options for a $6.9m profit, all of which he donated to charity. (Most of it was donated to the Richard B Cheney Cardiac Institute at George Washington University.)

It is unlikely that the plaintiffs in the class action lawsuit will ever get a penny back from Cheney's Halliburton now, but there are some immediate winners. "The supreme court's unanimous opinion sends a strong signal that lower courts cannot use class certification as a procedural device to block investors from vindicating their statutory rights," Pace University law school professor Jill Gross told Reuters.

• Full disclosure: I own one share of Halliburton stock; but it was purchased three years after the period that the lawsuit covers