SEC, Citing Massive Fraud, Sues Former Waste Management Officials

Wall Street Journal 26mar02

WASHINGTON -- Federal regulators sued a half-dozen former top executives of Waste Management Inc. Tuesday, alleging they took part in a massive financial fraud that inflated the company's earnings and allowed them to reap millions in personal profits and other benefits.

The lawsuit, filed by the Securities and Exchange Commission in U.S. District Court in Chicago, claims that from 1992 to 1997 the former executives cooked the company's books to meet predetermined earnings targets.

Waste Management founder and former Chief Executive Dean Buntrock was named in the suit as a driving force behind the alleged fraud. The suit also names former President and Chief Operating Officer Phillip Rooney, former Chief Financial Officer James Koenig; Thomas Hau, the former controller; Herbert Getz, the former general counsel; and Bruce Tobecksen, former vice president of finance.

"Our complaint describes one of the most egregious accounting frauds we have seen," Thomas Newkirk, an associate director in the SEC's enforcement division, said in a prepared statement. He said the defendants "cooked the books, enriched themselves, preserved their jobs and duped unsuspecting shareholders."

The SEC suit seeks to have the defendants return their allegedly ill-gotten gains and pay civil fines. It also seeks to bar them from serving as corporate officers or directors and would prohibit future securities-law violations.

The SEC said the scheme unraveled in late 1997, after a new CEO ordered a review of the company's accounting practices. In 1998, Waste Management restated its 1992-1997 earnings by $1.7 billion, the largest restatement in corporate history, the SEC said.

Roiled by charges that it had misled investors in the late 1990s by repeating rosy earnings projections, the Houston trash hauler eventually settled charges by the SEC and shareholders. The scandal caused the company's stock price to plunge and cost it $3.5 billion in pretax charges and earnings restatements.

On Monday, Waste Management severed its relationship Arthur Andersen LLP, which is under fire for its audits of Enron Corp. The trash hauler had been one of Andersen's biggest clients and had stuck with the firm as Waste Management's own accounting scandal emerged several years ago. Andersen and three of its audit partners also were fined $7 million by the SEC in connection with the Waste Management audits, in what regulators said was the largest fine ever paid by a Big Five accounting firm in an enforcement action brought by the watchdog agency.

Waste Management said Monday it had maintained Andersen to help clean up the books after the accounting problems, but no longer needs it. "This is a new Waste Management with a new executive team pursuing a new strategy," said Maurice Myers, the company's chairman and chief executive. Waste Management has chosen Ernst & Young to handle its account.

In a statement Tuesday, the company noted that the alleged fraud took place before 1998, when Waste Management was acquired by a Houston company. With Mr. Buntrock gone, executives at the "new" Waste Management distanced themselves from the allegations.

Mr. Buntrock has denied the allegations. In a lawsuit filed last month, he said the SEC isn't entitled to sue him because the allegations are based on an analysis by two former consultants to Waste Management who are now the SEC's chief accountant and its chief accountant in the enforcement division.

"I firmly believe that, while under my watch, all of Waste Management's financials were fairly reported and in compliance with [generally accepted accounting principles]. I was never told otherwise, either by our internal accountants or our outside auditors," Mr. Buntrock said in a statement Tuesday.

The company now known as Waste Management Inc. was formed in 1998 when Houston-based USA Waste Services Inc. bought Illinois-based Waste Management Inc., then adopted the company's name.

Waste Management to Pay $457 Million
To Settle Shareholder Class-Action Suit

CALMETTA COLEMAN / Wall Street Journal 8nov01

Waste Management Inc. agreed to pay $457 million to settle a class-action lawsuit alleging securities-law violations and said it expects to receive $20 million in a related settlement with its auditor.

The Houston trash hauler also reported third-quarter net income of $30 million, or five cents a share, compared with a year-earlier loss of $191 million, or 31 cents a share. The latest results reflect the proposed settlements. Revenue fell 7.3% to $2.9 billion from $3.13 billion.

Waste Management shares were up 6.4%, or $1.63, to $26.98 at 4 p.m. Wednesday in New York Stock Exchange composite trading.

The class-action suit, a consolidation of 30 suits brought by shareholders, was filed in July 1999 and relates to conduct around the company's 1998 merger with USA Waste Services Inc. and a 1999 accounting scandal that triggered a stock plunge. Waste Management and its executives came under fire from shareholders after the company twice revised reported earnings in 1999 and took a $1.8 billion write-off.

The company said the settlement agreement resolves all claims under the class-action suit against the company as well as current and former officers and directors. If the settlement is approved by the U.S. District Court in Houston, the company said it would recommend a binding resolution to require annual elections of all directors to ensure better oversight.

Chairman and Chief Executive A. Maurice Myers said the settlement puts "to rest the most significant issues from the past."

The class covered by the settlement consists of all persons or entities who bought or acquired the company's stocks, bonds or call options or who sold put options from June 11, 1998, through Nov. 9, 1999.

Waste Management also said its auditor, Arthur Andersen LLP, settled a suit that alleged "professional malpractice" by the accounting firm in relation to the alleged securities violations. That suit was brought in a Texas state court in Harris County by shareholders on behalf of Waste Management. The $20 million settlement would be reduced by attorney's fees and expenses. Arthur Andersen said it admitted no wrongdoing in the settlement.