VS.
Waste Management Founder, Five Other Former Top Officers Sued for Massive Fraud
Defendants Inflated Profits by $1.7 Billion To Meet Earnings Targets;
Defendants Reap Millions in Ill-Gotten Gains While Defrauded Investors Lose More Than $6 Billion
http://www.sec.gov/news/headlines/wastemgmt6.htm
Washington, D.C., March 26, 2002 — The Securities and Exchange Commission filed suit today against the founder and five other former top officers of Waste Management Inc., charging them with perpetrating a massive financial fraud lasting more than five years. The complaint, filed in U.S. District Court in Chicago, charges that defendants engaged in a systematic scheme to falsify and misrepresent Waste Management's financial results between 1992 and 1997.
"Our complaint describes one of the most egregious accounting frauds we have seen," said Thomas C. Newkirk, associate director of the SEC's Division of Enforcement. "For years, these defendants cooked the books, enriched themselves, preserved their jobs, and duped unsuspecting shareholders."
According to the complaint, the defendants violated, and aided and abetted violations of, antifraud, reporting, and record-keeping provisions of the federal securities laws. The Commission is seeking injunctions prohibiting future violations, disgorgement of defendants' ill-gotten gains, civil money penalties, and officer and director bars against all defendants.
"Defendants' fraudulent conduct was driven by greed and a desire to retain their corporate positions and status in the business and social communities," Newkirk said. "Our goal is to take the profit out of securities fraud and to prevent fraudsters from serving as officers or directors of public companies."
The complaint alleges that the defendants played the following roles in the scheme:
Buntrock – WM’s FOUNDER: the driving force behind the fraud. He set earnings targets, fostered a culture of fraudulent accounting, personally directed certain of the accounting changes to make the targeted earnings, and was the spokesperson who announced the company's phony numbers. At the same time, Buntrock posed as a successful entrepreneur. With charitable contributions made with fruits of his ill-gotten gains or money taken from the company, Buntrock presented himself as a pillar of the community. For example, just 10 days before certain of the accounting irregularities first became public, he enriched himself with a tax benefit by donating inflated company stock to his college alma mater to fund a building in his name. He was the primary beneficiary of the fraud and reaped more than $16.9 million in ill-gotten gains from, among other things, performance-based bonuses, retirement benefits, charitable giving, and selling company stock while the fraud was ongoing.
Rooney – COO - in charge of building the profitability of the company's core solid waste operations and at all times exercised overall control over the company's largest subsidiary. He ensured that required write-offs were not recorded and, in some instances, overruled accounting decisions that would have a negative impact on operations. He reaped more than $9.2 million in ill-gotten gains from, among other things, performance-based bonuses, retirement benefits, and selling company stock while the fraud was ongoing.
Koenig – CFO - primarily responsible for executing the scheme. He also ordered the destruction of damaging evidence, misled the company's audit committee and internal accountants, and withheld information from the outside auditors. He profited by more than $900,000 from his fraudulent acts.
Hau – VP - principal technician for the fraudulent accounting. Among other things, he devised many "one-off" accounting manipulations to deliver the targeted earnings and carefully crafted the deceptive disclosures. He profited by more than $600,000 from his fraudulent acts.
Tobecksen – VP of Finance another accounting expert who was Koenig's right-hand man. In 1994, he was enlisted to handle Hau's overflow. He profited by more than $400,000 from his fraudulent acts
Getz - the company's general counsel. Getz blessed the company's fraudulent disclosures and profited by more than $450,000 from his fraudulent acts.
The complaint alleges that defendants fraudulently manipulated the company's financial results to meet predetermined earnings targets. The company's revenues were not growing fast enough to meet these targets, so defendants instead resorted to improperly eliminating and deferring current period expenses to inflate earnings. They employed a multitude of improper accounting practices to achieve this objective. Among other things, the complaint charges that defendants:
· avoided depreciation expenses on their garbage trucks by both assigning unsupported and inflated salvage values and extending their useful lives,
· assigned arbitrary salvage values to other assets that previously had no salvage value
· failed to record expenses for decreases in the value of landfills as they were filled with waste
· refused to record expenses necessary to write off the costs of unsuccessful and abandoned landfill development projects
· established inflated environmental reserves (liabilities) in connection with acquisitions so that the excess reserves could be used to avoid recording unrelated operating expenses
· improperly capitalized a variety of expenses, and
· failed to establish sufficient reserves (liabilities) to pay for income taxes and other expenses.