U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20420 / January 3, 2008
Accounting And Auditing Enforcement Release No. 2763 / January 3, 2008
Securities and Exchange Commission v. James E. Koenig, Civil Action No. 02 C 2180 (N.D. Ill. Dec. 21, 2007) (Judge Andersen).
Final Judgment Entered Against James E. Koenig, Former CFO of Waste Management, Inc.
On December 21, 2007, the United States District Court for the Northern District of Illinois entered final judgment against defendant James E. Koenig, the former CFO of Waste Management, Inc. after a jury found that he committed 60 securities laws violations in a five-year period. The final judgment follows an 11-week jury trial in 2006 that resulted in a verdict in the SEC's favor against Koenig on all charges. The jury found Koenig liable for securities fraud, falsifying company books and records, lying to auditors, and aiding and abetting the company's violations.
The final judgment, which followed a two-day bench trial on remedies before U.S. District Court Judge Wayne R. Andersen, permanently bars Koenig from acting as an officer or director of a public company, enjoins him from future violations of the antifraud and other provisions of the federal securities laws, and requires him to pay more than $4 million in disgorgement, prejudgment interest, and civil penalties.
The Commission alleged in its complaint that, beginning in 1992 and continuing into 1997, Koenig and others engaged in a systematic scheme to falsify and misrepresent Waste Management's financial results with profits being overstated by $1.7 billion. According to the complaint, the scheme was accomplished through false and misleading disclosures and a variety of non-GAAP accounting practices designed to defer current period expenses whenever possible. For example, the company manipulated its calculation of depreciation expense by repeatedly extending the useful lives and overstating the salvage value of its trucks and containers, thus reducing periodic depreciation expenses. The company also failed to write off impaired assets carried on its balance sheet, improperly capitalized interest and other current period expenses, understated its income tax expenses, under-accrued reserves, misapplied acquisition accounting principles, and improperly reversed reserves into income. All of these practices boosted current period earnings by reducing current period expenses. The fraud resulted in a restatement in February 1998, which at the time was the largest restatement in history.
On December 3, 2007, the Court issued a memorandum opinion and order that set forth the findings that formed the basis for the final judgment. See SEC v. Koenig, 2007 WL 4277439 (N.D. Ill. Dec. 3, 2007). The judgment permanently bars Koenig from acting as an officer or director of a public company and enjoins him from violating, or aiding and abetting violations of, Sections 10(b) and 13(a) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, and 13a-13 promulgated thereunder, and Section 17(a) of the Securities Act of 1933. The judgment additionally enjoins Koenig from aiding and abetting violations of Section 13(b)(2)(A) of Exchange Act, and from violating Exchange Act Rules 13b2-1 and 13b2-2. The judgment also requires Koenig to pay $4,156,034 in total, comprised of $831,500 in disgorgement for Koenig's ill-gotten earnings-based performance bonuses, together with prejudgment interest thereon in the amount of $1,246,517, and a civil penalty in the amount of $2,078,017.
Previously, the Commission reached settlements with the Company's outside public accountants Arthur Andersen, and four of its former partners. Settlements were also reached in litigation with the founder and four other top officers of Waste Management. Additional information concerning this action and Commission actions related to this matter can be found at: