U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19351 / August 29, 2005
Accounting and Auditing Enforcement
Release No. 2298 / August 29, 2005
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).
WASTE MANAGEMENT, INC. FOUNDER AND THREE OTHER FORMER TOP OFFICERS SETTLE SEC FRAUD ACTION FOR $30.8 MILLION
The Securities and Exchange Commission announced today that, on August 26, 2005, the United States District Court for the Northern District of Illinois entered final judgments as to defendants Dean L. Buntrock, Phillip B. Rooney, Thomas C. Hau, and Herbert A. Getz. The settling defendants, who consented to the Judgments without admitting or denying the allegations in the Commission's complaint, were senior officers of Waste Management, Inc.: Dean L. Buntrock was Waste Management's founder, chairman of the Board of Directors, and chief executive officer during most of the relevant period; Phillip B. Rooney was president and chief operating officer, director, and CEO for a portion of the relevant period; Thomas C. Hau was vice president, corporate controller, and chief accounting officer; and Herbert Getz was senior vice president, general counsel, and secretary. The Judgments permanently bar Buntrock, Rooney, Hau, and Getz from acting as an officer or director of a public company, enjoin them from future violations of the antifraud and other provisions of the federal securities laws, and require payment of $30,869,054 in disgorgement, prejudgment interest, and civil penalties.
The complaint in this action charged Buntrock, Rooney, Hau, Getz, and two other former top officers of Waste Management with perpetrating a massive financial fraud lasting more than five years. The Commission alleged 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 a restatement in February 1998, which at the time was the largest restatement in history.
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 Judgments permanently bar Buntrock, Rooney, Hau, and Getz from acting as an officer or director of a public company and enjoin them 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 as to Hau additionally enjoins him 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 Judgments also require payment of over $30 million in total, comprised of $16.4 million in disgorgement, $10.4 million prejudgment interest, and $4 million in civil penalties. The disgorgement includes approximately $6.3 million in earnings-based performance bonuses from all settling defendants, $5.9 million in Buntrock and Hau's retirement benefits based upon the earnings-based bonuses, $3.5 million in losses avoided by Buntrock and Rooney from selling stock during the fraud, and $700,000 in tax benefits realized by Buntrock from gifting stock that was inflated by the fraud. The breakdown of the monetary relief is as follows:
- Buntrock - $19,447,670 total, comprised of $10,708,032 in disgorgement, $6,439,638 of prejudgment interest, and a $2,300,000 civil penalty;
- Rooney - $8,692,738 total, comprised of $4,593,764 in disgorgement, $2,998,974 of prejudgment interest, and a $1,100,000 civil penalty;
- Hau -$1,578,890 total, comprised of $641,866 in disgorgement, $507,024 of prejudgment interest, and a $430,000 civil penalty; and
- Getz - $1,149,756 total, comprised of $472,500 in disgorgement, $477,256 of prejudgment interest, and a $200,000 civil penalty.
Additionally, Getz agreed to settle a related Rule 102(e) administrative proceeding to be instituted by the Commission by consenting to the entry of an order suspending him from appearing or practicing before the Commission as an attorney for five years.
The Commission's litigation is continuing as to James E. Koenig Waste Management's former chief financial officer and executive vice president. The other senior officer named in the complaint, Bruce D. Tobecksen, settled in September 2004. [Release No. LR-18913] (September 30, 2004).
Additional information concerning this action and Commission actions related to this matter can be found at:
SEC v. Buntrock, et al., Civil Action No. 02-C-2180 (N.D. Ill. March 26, 2002) (Andersen, J.) [Release No. LR-17435] (March 26, 2002)
SEC v. Arthur Andersen LLP, et al., No. 1:01CV01348 (JR) (D.D.C.) [Release No. LR-17039] (June 19, 2001);
In the Matter of Arthur Andersen, LLP, [Release No. 34-44444] (June 19, 2001);
In the Matter of Robert E. Allgyer, CPA, [Release Nos. 33-7986, 34-44445] (June 19, 2001);
In the Matter of Edward G. Maier, CPA, [Release Nos. 33-7987, 34-44446] (June 19, 2001);
In the Matter of Walter Cercavschi, CPA, [Release Nos. 33-7988, 34-44447] (June 19, 2001);
In the Matter of Robert G. Kutsenda, CPA, [Release No. 34-44448] (June 19, 2001);
SEC v. Buntrock, et al., Civil Action No. 02-C-2180 (N.D. Ill.) (Andersen, J.) [Release No. LR-18913] (September 30, 2004).