SEC files lawsuit against former Waste Management officials, alleging they cooked books for years

Posted 4:04PM on Tuesday 26th March 2002 ( 23 years ago )

WASHINGTON - A half-dozen former executives of Waste Management Inc. were charged Tuesday with inflating earnings by $1.7 billion as part of an accounting fraud scheme designed to enrich themselves and dupe shareholders. Embattled auditing firm Arthur Andersen LLP helped perpetrate the scheme, identifying 32 "must-do" steps to cover it up, the Securities and Exchange Commission said. Waste Management's founder and five other former top officers were named in the lawsuit. SEC officials alleged the executives engaged in "massive earnings management fraud" from 1992 to 1997 that ultimately cost shareholders over $6 billion. In Tuesday's complaint filed in U.S. District Court in Chicago, the SEC said Waste Management founder Dean L. Buntrock and five other former top officers hid millions in expenses and assigned arbitrary salvage values to assets that previously had no value. They also did not write off the costs of unsuccessful or abandoned landfill projects, the complaint said. According to the SEC, officials received performance-based bonuses and valuable stock options based on inflated earnings, with several cashing in their stocks before unfavorable earnings reports lowered share prices. In one instance, the SEC said, Buntrock even got a tax benefit by donating inflated company stock to his college alma mater to fund a building in his name. The SEC said the scheme unraveled in late 1997, after a new CEO ordered a review of the company's accounting practices. Waste Management restated its 1992-1997 earnings by $1.7 billion, the largest restatement in corporate history, the SEC said. The news sent Waste Management's stock value tumbling by more than one-third. Shareholders lost over $6 billion in the market value of their shares, the SEC said. Waste Management officials did not immediately return phone calls Tuesday seeking comment . The SEC has been investigating Waste Management and Andersen for about four years. Last June, the SEC sued Andersen, alleging it issued false and misleading audit reports that inflated Waste Management's earnings from 1993 to 1996. Andersen, which also was the auditor of collapsed Enron Corp., agreed to pay a $7 million civil fine to settle the suit, without admitting to nor denying the allegations. The SEC said the fine was the largest ever paid by a Big Five accounting firm in an enforcement action brought by the market watchdog agency. Last November, Waste Management agreed to pay $457 million to settle a class-action suit alleging its executives misled investors about its finances two years ago to drive up the stock price. Tuesday's complaint said Buntrock, who was chairman of the board of directors and chief executive officer during most of the period covered, was "the driving force behind the fraud." It also names former executives Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert Getz and Bruce D. Tobecksen. "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." The SEC has said that Andersen, which had been Waste Management's auditor for decades, had too cozy a relationship. For decades, every chief financial officer and chief accounting officer of Waste Management had previously worked as an Andersen auditor. During the 1990s, 14 former Andersen employees worked for Waste Management, most often in key financial and accounting positions. 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. ------ On the Net: Securities and Exchange Commission: http://www.sec.gov Waste Management: http://www.wm.com Arthur Andersen LLP: http://www.andersen.com

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