Charges Against Former Waste Execs
The central government allegation against former Waste Management Inc. executives is that they manipulated the company’s financial results from 1992 to 1997 to meet preset earnings targets--thereby helping to boost the company’s stock price and thus the value of the executives’ stock options.
The case doesn’t involve the kind of off-balance-sheet partnerships that Enron Corp. used to hide debt and make its finances appear stronger than they were.
But as in the Enron case, the former Waste Management executives are alleged to have used phony accounting to enhance the company’s balance sheet and income statement.
The Securities and Exchange Commission contends that the Waste Management officers:
* Assigned arbitrary salvage values to assets that previously had no salvage value.
* Failed to record expenses for declines in the value of landfills as they were filled with waste.
* Refused to record expenses necessary to write off the costs of abandoned landfill development projects.
* Established inflated environmental reserves in connection with acquisitions, so that the excess reserves could be used to avoid recording unrelated operating expenses.
The terms for the alleged accounting manipulations are “netting” and “geography,” the SEC said.
“Defendants allegedly used netting to eliminate approximately $490 million in current-period operating expenses and accumulated prior-period accounting misstatements by offsetting them against unrelated one-time gains on the sale or exchange of assets,” the SEC said.
In addition, the executives “are charged with using geography entries to move tens of millions of dollars between various line items on the company’s income statement” to make the firm’s financial results appear more robust.
The SEC alleges that the executives’ conduct “was driven by greed and a desire to retain their corporate positions and status in the business and social communities,” said Thomas C. Newkirk, SEC associate enforcement director.
According to the complaint, former Waste Management chairman Dean L. Buntrock, 70, was “the driving force behind the fraud. He set earnings targets, fostered a culture of fraudulent accounting, personally directed certain of the accounting changes to make the targeted earnings, and was the spokesperson who announced the company’s phony numbers.”
Buntrock “presented himself as a pillar of the community,” making charitable contributions with allegedly ill-gotten gains, the SEC said.
Buntrock denies the SEC’s charges.
