U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 18913 / September 30, 2004
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 2116 / September 30, 2004
FORMER VICE PRESIDENT OF WASTE MANAGEMENT, INC. SUED FOR MASSIVE EARNINGS MANAGEMENT FRAUD SETTLES SEC ACTION
Securities and Exchange Commission v. Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen, Civil Action No. 02 C 2180 (N.D. Ill.) (Judge Andersen).
The Securities and Exchange Commission ("Commission") announced today that, on September 28, 2004, the United States District Court for the Northern District of Illinois entered final judgment as to defendant Bruce D. Tobecksen in the federal civil enforcement action filed by the Commission. Tobecksen was the former vice president of finance at Waste Management, Inc. ("Waste Management" or "Company"). The Judgment permanently bars Tobecksen from acting as an officer or director of a public company and enjoins him from future violations of the antifraud and other provisions of the federal securities laws. The Judgment also requires Tobecksen to pay a $120,000 civil penalty and $689,159 in disgorgement and prejudgment interest. Tobecksen consented to the Judgment without admitting or denying the allegations in the Commission's complaint.
The complaint in this action charges the founder, Tobecksen, and four other former top officers of Waste Management with perpetrating a massive financial fraud lasting more than five years. The Commission alleges that, beginning in 1992 and continuing into 1997, defendants engaged in a systematic scheme to falsify and misrepresent Waste Management's financial results with profits being overstated by $1.7 billion. The fraud resulted in what at the time was the largest restatement in history.
Tobecksen was Waste Management's vice president of finance from March of 1993 until December of 1997. The Commission's complaint alleges that, starting in 1994, Tobecksen was involved in two particular accounting manipulations - he recorded unsupported and erroneous depreciation entries and assisted in recording purported miscellaneous reclassification entries referred to as "geography." According to the complaint, Tobecksen had responsibility for creating a new and improper methodology for calculating depreciation expense in 1994. The complaint alleges that when told that the new method was flawed and overstated income, Tobecksen and other defendants let the error stand and grow and concealed it from the Company's outside auditors. By 1996, the complaint alleges, they knew that the cumulative impact of the error exceeded $100 million. The complaint alleges that "geography" worked by simply moving tens-of-millions of dollars from one income statement category of expense to another - from the correct one to an incorrect one. According to the complaint, the entries improved or smoothed over the Company's reported operating margins or other quarterly trends discussed in the Company=s filings with the Commission.
The complaint seeks disgorgement of Tobecksen's earnings-based performance bonuses and enhanced retirement benefits that were based on fraudulently overstated earnings. The complaint charges Tobecksen with securities fraud, falsifying Waste Management's books and records, and aiding and abetting Waste Management's reporting and record keeping violations, in violation of Sections 10(b), 13(a), 13(b)(2)(A) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 promulgated thereunder, and Section 17(a) of the Securities Act of 1933.
The Judgment permanently bars Tobecksen from acting as an officer or director of a public company and enjoins him from future violations, or aiding and abetting violations, of the above provisions of the federal securities laws. Tobecksen also must pay disgorgement in the amount of $403,179, prejudgment interest thereon in the amount of $285,980, and a $120,000 civil penalty. The Judgment permits the Commission to later file a motion to distribute the funds pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002.
The Commission's litigation is continuing as to the five other former executives of Waste Management: Dean L. Buntrock, Waste Management's founder, chairman of the Board of Directors, and chief executive officer during most of the relevant period; Phillip B. Rooney, president and chief operating officer, director, and CEO for a portion of the relevant period; James E. Koenig, executive vice president and chief financial officer; Thomas C. Hau, vice president, corporate controller, and chief accounting officer; and Herbert Getz, senior vice president, general counsel, and secretary.
Additional information concerning this action and Commission actions related to this matter can be found at: