Waste Management Sues Over Acquisition

Waste Management Inc., the biggest U.S. trash hauler, contends in a fraud lawsuit that it overpaid in last year’s $1.15-billion acquisition of Eastern Environmental Services Inc. because Eastern’s chairman overstated profit. The suit, which seeks more than $597 million in damages, also claims that former Waste Management Chief Executive John Drury and ousted President Rodney Proto personally benefited from transactions with former Eastern Chairman Louis Paolino Jr. The suit, filed in federal court in Delaware, stems from an internal probe into how Waste Management lost control of its operating and accounting systems since its creation last year. The company’s shares have plunged 63% this year amid a string of profit warnings. Eastern, based in Mount Laurel, N.J., also is accused in the suit of acquiring dozens of waste companies starting in 1996, then inflating its profit by improperly accounting for reserves set aside for acquisition costs. Shares of Houston-based Waste Management rose 25 cents to close at $17.19 on the NYSE. Shares of Mount Laurel, N.J.-based Mace Security International Inc., where Paolino is now chief executive, fell 30%, or $1.75, to $4.13 on Nasdaq. Mace had the fourth-biggest percentage drop in U.S. markets.