The Securities and Exchange Commission settled civil insider-trading charges with the former president and chief operating officer and the former chief financial officer of Houston-based Waste Management Inc. (WMI).
Former president and COO Rodney R. Proto and former CFO Earl E. DeFrates were charged with making public statements to Wall Street analysts, investment bankers, and investors, in May and June 1999, which they knew, or should have known, were materially false or misleading, and then illegally trading on this knowledge.
The commission alleged that Proto and DeFrates each sold their stock in May or June of 1999, while in possession of material, nonpublic information that the company’s reported pretax income for the first quarter included tens of millions of dollars of undisclosed, nonrecurring income items that inflated WMI’s first-quarter earnings per share by 17 percent.
Proto and DeFrates presented a materially false or misleading picture of the company’s first-quarter operations to Wall Street analysts and investors, added the SEC, by failing to disclose those nonrecurring items in a press release and in a conference call. If they had made the proper disclosure, the commission charged, WMI’s reported quarterly earnings from normal operations would have been 52 cents per share, 9 cents per share lower than its first-quarter 1999 earnings guidance and lower than its fourth-quarter earnings per share.
The commission also alleged that Proto and DeFrates made additional materially false or misleading statements in June and July 1999. On at least six separate occasions, maintained the SEC, Proto, DeFrates, or both confirmed the company’s second-quarter 1999 earnings guidance in conversations with Wall Street analysts, investment bankers, and members of the public, even though they knew, or were reckless in not knowing, that WMI would fall well short of the guidance.
Without admitting to or denying the charges, Proto agreed to pay more than $3.7 million, and DeFrates, $482,779, which includes disgorgement, interest, and penalties. Both men will be barred for five years from serving as an officer or director of a public company.
The SEC also filed a complaint, which has not been settled, against former WMI chief accounting officer Bruce E. Snyder Jr., charging him with insider trading and with preparing, reviewing, and signing a materially false or misleading quarterly report for the three-month period ended December 31, 1999.
The commission is seeking disgorgement, interest, penalties, and to bar Snyder from serving as an officer or director of a public company.
ERP Implementation Deflates Goodyear’s Earnings
The Goodyear Tire & Rubber Co. announced that it will restate earnings by $100 million from 1998 through 2002 and for the first and second quarters of 2003. The restatements will record adjustments primarily resulting from the implementation of an enterprise resource planning (ERP) system in 1999 and errors in intercompany billing systems.
The world’s largest rubber company said it has identified and corrected the adjustments. Goodyear added that the adjustments do not affect the company’s net cash position, and the restatement will not affect its access to credit facilities. The adjustments are expected to improve the company’s net loss for the first half of 2003, the company added, due to charges previously recognized during the first half of 2003 that will be reflected in the restatement for prior years.
Goodyear also said it expects to reduce shareholders’ equity as of June 30, 2003, by as much as $120 million, of which $20 million relates to periods prior to 1998.
The Akron, Ohio-based company will delay its third-quarter report until the middle of next month, when they will be released along with other information about the restatement.
Former Freddie Mac President Makes a Deal
Former Freddie Mac president, vice chairman, and chief operating officer David Glenn agreed to pay a civil penalty of $125,000 and cooperate “fully” with an investigation into the mortgage financer’s accounting practices as part of a deal with the company’s regulator.
Armando Falcon, director of the Office of Housing Enterprise Oversight, said in a press release, “This consent order represents a significant development in OFHEO’s ongoing examination of Freddie Mac’s accounting and management practices. I anticipate that Mr. Glenn’s cooperation will be valuable to our investigation.”
OFHEO spokeswoman Corinne Russell told Reuters the regulator reached the deal with Glenn late on Wednesday.
Glenn is precluded from serving in any capacity at either Freddie Mac or rival Fannie Mae. In addition, he will lose about $13 million in severance payments because he was fired with cause from Freddie Mac, the OFHEO added.
In June, Glenn and several other Freddie Mac executives were fired due to their role in an accounting scandal that resulted in the underreporting of earnings by $1.5 million to $4.5 billion over three years, presumably to smooth earnings reports.
Later that month, lawmakers asked regulators to investigate several Freddie Mac executives who allegedly sold company stock in the days before a management shakeup sent the mortgage specialist’s shares tumbling. Glenn sold 4,228 shares for $255,921, according to CBS Marketwatch.
Meanwhile, on Thursday Senate Banking Committee Chairman Richard Shelby said at a hearing that a bill revamping government oversight of mortgage finance companies Freddie Mac and Fannie Mae may not be ready in 2003, according to Reuters.
“The committee will work diligently to craft an appropriate reform package. Whether we can do so this fall is not clear,” Shelby reportedly said.
Wal-Mart Raided by Immigration
U.S. officials raided 61 Wal-Mart stores in 21 states, and arrested 300 workers on immigration charges, as part of a long-term investigation into contractor cleaning crews, according to published reports.
The probe, known as “Operation Rollback,” involved allegations that the contractor had recruited illegal immigrants, mainly Eastern European nationals, to work on cleaning crews at the stores for the world’s largest retailer, according to Reuters.
None of the workers, who were arrested while they were completing their night shifts, were directly employed by Wal-Mart. According to the wire service, however, a federal law enforcement official said that based on recorded conversations, surveillance, and monitoring, some Wal-Mart executives had direct knowledge of the scheme.
Federal grand jury subpoenas have been issued for the unnamed Wal-Mart executives to testify, said the report.
“If a company knowingly hires illegal workers it can be penalized up to $10,000 per person,” said Garrison Courtney, a spokesman for the Bureau of Immigration and Customs Enforcement, according to Reuters.
The Thursday arrests stemmed from two prior investigations by federal immigration officials involving contractors and Wal-Mart stores — one in 1998 and the other in 2001 — the wire service reported, citing a law enforcement official.
Seagate Announces SEC Probe
Seagate Technology said it recently received from the Securities and Exchange Commission a request for all research analyst reports regarding the company that were published between January 1, 2000, and August 30, 2003.
The announcement was made during a conference call Tuesday night and subsequently published in an 8K filing. The computer storage maker said it is cooperating fully with the investigation.
Back in December 2000, Seagate went public in a leveraged buyout led by Silver Lake Partners and company management, including chief executive Steve Luczo. It returned to the public markets in December 2002 when it raised $870 million in an initial public offering.
Seagate spokesman Brian Ziel told the Associated Press that the company has not been subpoenaed by the SEC and that the company does not know whether the investigation is of Seagate itself.