A securities fraud lawsuit filed against six former Waste Management Inc. executives by the Securities and Exchange Commission also accused former Enron Corp. auditor Arthur Andersen LLP of helping senior managers cook the books.
The civil suit was filed in U.S. District Court in Chicago on Tuesday, nine months after Andersen agreed to pay a $7 million fine in a settlement without admitting any wrongdoing. The former Waste Management managers are accused of inflating earnings of the trash-hauling giant by more than $1.7 billion to meet earnings targets between 1992 and 1997, when the scheme fell apart and the company's stock crashed.
The suit said former CEO and founder Dean Buntrock defrauded stockholders and seeks more than $57 million from him and the other defendants.
"Our complaint describes one of the most egregious accounting frauds we have ever seen," said Thomas Newkirk, associate director of the Securities and Exchange Commission's division of enforcement. "For years, these defendants cooked the books, enriched themselves, preserved their jobs and duped unsuspecting shareholders."
The 138-page complaint said Buntrock "set earnings targets, fostered a culture of fraudulent accounting" and personally directed the accounting scam, which Andersen was aware of while reviewing 1993 financial statements. Andersen reached a deal to give Waste Management 10 years to correct the financial statements.
Buntrock, 70, got a tax break by donating inflated company stock worth more than $16.9 million to his college alma mater just 10 days before the accounting fraud became public, the SEC said.
"I firmly believe that, while under my watch, all of Waste Management's financials were fairly reported and in compliance with generally accepted accounting principles. I was never told otherwise, either by our internal accountants or our outside auditors," Buntrock said in a statement.
The suit said the executives hid millions in expenses and assigned arbitrary values to assets to inflate earnings while they took performance bonuses and stock options.
The other individuals named include former president, CEO and COO Phillip Rooney, 57; James Koenig, 54, former executive vice president and chief financial officer; Thomas Hau, 66, former vice president, controller and chief accounting officer, Herbert Getz, 46, former senior vice president, general counsel and secretary, and Bruce Tobecksen, 57, former vice president of finance.
Koenig called the allegations "baseless" and in a statement said senior management had relied on Andersen's advice and blamed the embattled auditing firm, which was not named in the suit, for Waste Management's financial reporting irregularities.
The allegations were another blow to Andersen, whose CEO Joseph Berardino resigned Tuesday to give an independent board headed by former Federal Reserve Board chairman Paul Volcker a chance to save the 89-year-old firm.
Andersen was indicted on one criminal count of obstruction of justice March 14 in the shredding of thousands of Enron-related documents and has lost more than 70 clients in the wake of the scandal.
Waste Management, formerly headquartered in Oakbrook, Ill., was acquired by Houston-based USA Waste Services Inc. in 1998 but retained its name. The company dropped Andersen as its auditor last week.