A federal judge in Dallas yesterday rejected a $6 million settlement in a shareholder suit that alleged Halliburton Co. engaged in accounting fraud, saying the lead plaintiffs' lawyer mishandled the case and may have settled for too little money.

The decision by U.S. District Judge Barbara M.G. Lynn followed a challenge of the proposed settlement by lawyers for some of the 800,000 shareholders. She found that the lead lawyer for the stockholders held secret meetings with Halliburton lawyers and reached the settlement agreement in June without the knowledge of other lead plaintiffs or their lawyers.

The lawsuit, filed in 2002, alleges that the company failed to disclose a change in accounting that enabled it to report higher earnings in 1998 and 1999, at a time when Dick Cheney served as chief executive. The ruling comes one month after the Houston oil services company agreed to pay $7.5 million to settle Securities and Exchange Commission charges that the company and two executives misled investors by the way it reported revenue from construction contracts.

Lynn said a quarter of the $6 million settlement went to lawyers' fees, and a shareholder with 100 affected shares could recover as little as 62 cents from the arrangement. "The Court does not have evidence this settlement was the product of fraud," she wrote. "However, the Court is not satisfied that the way in which the settlement negotiations were conducted assured a fair, reasonable, and adequate recovery to the class."

Neil Rothstein, an attorney for the Archdiocese of Milwaukee Supporting Fund, which challenged the proposed settlement, praised Lynn's decision. He called the proposal "completely inadequate."

"It conferred no benefit on anyone but the lawyers," Rothstein said, adding that his clients "stood up and said, 'We're not going to become poster children of a ridiculous settlement.' "

Halliburton officials said the settlement was fair and the judge's decision was wrong. "We believe that we offered a fair amount of money to settle claims that, in our opinion, have no merit," said spokeswoman Wendy Hall.

The case is unusual because serious rifts among plaintiff lawyers in large class-action cases are relatively rare. "The majority of these cases never have that situation arise," said Stanford University law professor Joseph A. Grundfest, who tracks class-action cases around the nation.

Richard Schiffrin, the lead shareholders' attorney the judge criticized, did not return a telephone call.

Lynn ordered Schiffrin's firm and Halliburton to make available "any and all documents and depositions" by Sept. 28 and said all the lead plaintiffs will meet to mediate the case by Nov. 1.