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News > Companies  
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SEC sues ex-WMI execs
Commission charges six former executives with fraud; Andersen also named.
March 26, 2002: 8:11 PM EST
By Kim Khan, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The Securities and Exchange Commission filed suit against six former executives of Waste Management Inc. Tuesday, charging them with fraudulently boosting earnings by $1.7 billion between 1992 and 1997.

The SEC said the executives, including founder Dean L. Buntrock and the former president, Phillip B. Rooney, "fraudulently manipulated the company's financial results to meet predetermined earnings targets."

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The SEC also said the defendants "were allegedly aided in their fraud by the company's long-time auditor, Arthur Andersen LLP, which repeatedly issued unqualified audit reports on the company's materially false and misleading annual financial statement."

According to the complaint Andersen, recently indicted by the Justice Dept. for its role in Enron Corp.'s collapse, made a secret agreement with the company "to cover up past frauds by committing additional frauds in the future."

Also named in the suit are former Chief Financial Officer James E. Koenig, former Chief Accounting Officer Thomas C. Hau, former General Counsel Herbert Getz and former Vice President of Finance Bruce D. Tobecksen.

The SEC also said all six executives benefited financially from fraud and is seeking to recover their "ill-gotten gains."

"Our complaint describes one of the most egregious accounting frauds we have seen," Thomas C. Newkirk, associate director of the SEC's Division of Enforcement, said. "For years, these defendants cooked the books, enriched themselves, preserved their jobs, and duped unsuspecting shareholders."

Sarah Voss, director of corporate communications for Waste Management (WMI: down $0.01 to $26.89, Research, Estimates), told CNNfn the action taking by the SEC is against the "old Waste Management."

Voss said the company has cooperated fully with SEC in the investigation and does not believe the agency will seek any action against Waste Management.

Rooney, who was CEO as well as president for a portion of the five-year period cited by the SEC, said he will challenge the suit.

"The allegations against me are unjustified and unfair," Rooney said. "They represent an unfounded attack on my conduct while I was at Waste Management, a company which I served for more than 28 years. I will fight the lawsuit and I fully expect to be vindicated."

"It's troubling to me that this management team just like the Enron management team is out there saying we didn't do anything wrong, we just relied upon the audtitors," said Lynn Turner, director for the Center for Quality Financial Reporting at the University of Colorado. "That is absolutely atrocious."

"First and foremost it is the company, it's these executives that put these numbers together, it's not the auditors," Turner said. "So the people who are actually in the kitchen, cooking the books, stirring the stew, so to speak, are these executives, and there is no excuse for what happened."

In the summer of 2000, Waste Management and Arthur Andersen agreed to pay $229 million to settle a shareholder lawsuit over years of questionable accounting practices. Waste Management took a $3.5 billion charge in 1998 related to accounting irregularities.

About a year later, Andersen agreed to pay a $7 million civil fine after the SEC accused it of "knowingly or recklessly" issuing false and misleading audit reports for Waste Management for the years 1993 though 1996 that inflated the company's earnings by more than $1 billion.

On Friday, Waste Management joined the list of companies dumping beleaguered Andersen, switching to Ernst & Young.

The "one-off problem"

According to the Commission, the executives would meet annually to set earnings targets, monitor the results and then artificially cut expenses and inflate earnings with "top-level adjustments."

This resulted in a cycle, referred to as the "one-off problem" by Hau, where the inflated earnings became the base for future earnings manipulations in order for the company to show a rise, the SEC said.

At the outset of the fraud, Waste Management executives allegedly capped Andersen's audit fees, but said it could earn additional fees through special work.

Initially, Andersen identified errors that understated expenses and overstated earnings and submitted Proposed Adjusting Journal Entries, but later agreed to fraudulently write off the errors over a period of 10 years, the SEC said.

"As it's noted in the release Andersen was aware of the problem and agreed to go along with it," Turner said. "That is problematic not only in this one but time after time after time at the SEC we saw that occurring, unfortunately in this case the number are just humongous."

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Individually, the Commission said Buntrock, "the driving force behind the fraud," was the spokesman for the company's "phony numbers" and made more than $16.9 million from performance-based bonuses, selling company stock and other activities based on fraudulent activities.

In February Buntrock reportedly filed a suit against the SEC alleging a conflict of interest in its investigation.

The SEC also said Rooney ensured required write-offs were not recorded and pulled in more than $9.2 million.  Top of page






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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.