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Garbage company sued in fraud case
WASHINGTON -- A half-dozen former executives of Waste Management Inc. were accused Tuesday of 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 civil 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. In 1998, 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.
Company officials noted Tuesday that the alleged fraud took place before 1998, when Waste Management was acquired by a Houston company. With Buntrock gone, executives at the "new" Waste Management distanced themselves from the allegations.
"We have cooperated fully with the SEC in the investigation and do not believe that the SEC will seek any action against New Waste Management in connection with the events detailed in the complaint," said A. Maurice Myers, the company's chairman, president and CEO. He said Waste Management has "worked hard to put past issues behind us, including the resolution of virtually all significant litigation relating to the 1998 restatement."
Buntrock has denied the allegations. In a lawsuit filed last month, he said the SEC is not 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.
The SEC has been investigating Waste Management and Andersen for about four years.