Boeing fired its CFO, Mike Sears, for talking with a former U.S. air force official about future employment before the official had disqualified herself from working on matters involving the aerospace giant.
The official, Darleen Druyun, who had since become Boeing’s vice president and deputy general manager of missile-defense systems, was also fired.
The talks about hiring Druyun, then the Air Force’s No. 2 acquisition official, happened while she was helping negotiate a deal to buy Boeing refueling tankers, according to Bloomberg. Sears and Druyun met in October 2002 before Druyun disqualified herself from working on Boeing business on November 5, 2002, Boeing spokesman John Dern told the news service. In November 2002, Druyun left the Air Force, joining Boeing in January.
Sears failed to follow Boeing procedures for hiring government officials, Dern said. Further, an internal review found that he and Druyun tried to conceal their misconduct.
In September, the Pentagon launched an investigation into whether Druyun gave Boeing a rival’s information related to the lease proposal, according to Bloomberg. Lawmakers, including Senator John McCain, said the proposal was too costly and was created to benefit Boeing, Bloomberg added.
“Compelling evidence of this misconduct by Mr. Sears and Ms. Druyun came to light over the last two weeks,” Boeing chairman and CEO Phil Condit said. “Upon review of the facts, our board of directors determined that immediate dismissal of both individuals for cause was the appropriate course of action.”
Having joined the company via its 1997 purchase of McDonnell Douglas Corp., Sears was named chief financial officer in May 2000. He was once considered a possible heir-apparent to Phil Condit, Boeing’s chairman and CEO, according to Bloomberg.
Boeing moved quickly to name James Bell acting CFO, replacing Sears. Bell has been serving as senior vice president of finance and corporate controller.
“Under James Bell’s direction financial strength and transparency will continue to remain a priority for Boeing,” Condit stated.
Bell joined Rockwell as an accountant in 1972 and moved up the ladder in auditing, program management, and finance before Boeing acquired the space and defense businesses of Rockwell in 1996.
As the corporate controller for Boeing, Bell has been responsible for managing the company’s financial and cost accounting, external reporting, cost policy, companywide estimating, and common business systems. He has been the company’s principal liaison with the board of directors’ audit committee.
Boeing stressed that over the past few months the aerospace giant has tried hard to get the message across that ethical breaches will not be tolerated.
Condit said the board of directors retained former Sen. Warren Rudman of Paul, Weiss, Rifkind, Wharton & Garrison to review Boeing’s ethics programs.
“One of the first actions we took as a result was to create the office of internal governance, with its leader reporting directly to me,” Condit pointed out. “The board and I have asked Senator Rudman to extend his review and examine Boeing’s procedures and practices on hiring government employees to ensure this type of incident never happens again.”
“Boeing must and will live by the highest standards of ethical conduct in every aspect of our business,” Condit said. “When we determine there have been violations of our standards, we will act swiftly to address them, just as we have today.”
He also stressed that these actions do not reflect the financial condition of the company, which he characterized as “excellent.”
Boeing said it informed the Department of the Air Force of the actions taken and will continue to cooperate with the government in its ongoing investigation regarding this matter. It is not possible to predict at this time what actions the government might take against the individuals or Boeing and the consequences of those actions.
Former HealthSouth CFO Got $45 Million Loan for New Company
HealthSouth Corporation provided more than $45 million in loans to a company created by a former company CFO, Michael Martin, to help his company buy four hospitals from HealthSouth two years ago, according to the Birmingham News.
The Alabama paper said HealthSouth loaned Martin’s Meadowbrook Healthcare Inc. $20 million and extended a $25.5 million credit line to Meadowbrook in late 2001.
The deals were not revealed or brought to HealthSouth’s board of directors, and they were not disclosed to investors in Securities and Exchange Commission filings, a company spokeswoman told the paper.
Martin, who joined HealthSouth in 1997, left the health-care company in April 2000 and is one of about a dozen former HealthSouth executives who has admitted to roles in the massive accounting fraud at the company.
Earlier this year Martin pleaded guilty to conspiring with ex-CEO Richard M. Scrushy to commit fraud and file false financial statements in a ploy to overstate earnings.
Martin could face a maximum penalty of $1.25 million in fines and 15 years in prison when he is sentenced, probably within a few weeks, according to published reports. However, he could wind up with a much lighter sentence because he is cooperating with government investigators.
Bryan Marsal, HealthSouth’s chief restructuring officer, told the News that federal investigators have sought information about the company’s dealings with Meadowbrook. “We have been supportive in helping develop that information,” he told the paper.
Meadowbrook bought four acute-rehabilitation and long-term acute-care hospitals in Florida, Texas, Oklahoma, and Louisiana in December 2001 from HealthSouth, according to the paper, which cited documents HealthSouth filed with the SEC. HealthSouth reportedly said the deal, along with another transaction with a separate company, was valued at $31 million.
The SEC document, however, didn’t disclose the loans to Meadowbrook or the fact that Meadowbrook had been set up by Martin, the paper added.
Meadowbrook was not the first deal involving Martin and Scrushy, the paper noted.
In 1994, the two men and a third person, John McRoberts, who now serves as Meadowbrook’s president and CEO, founded Capstone Capital Corp., a Birmingham real estate investment trust that bought buildings from HealthSouth and other companies and leased them back, according to the reports. McRoberts then served as Capstone’s chief executive.
Scrushy and Martin bought low-priced founders’ shares in Capstone Capital, collected annual consulting fees, and earned gains on their shares when Nashville’s Health Care Realty Trust bought the company in an 1998 deal valued at $800 million, the paper said, citing SEC filings.
Conseco Sues Former CFO
Conseco Inc. is suing its former CFO Rollin Dick.
The insurer, which earlier this year emerged from bankruptcy, is seeking to recover part of the nearly $98 million it claims he owes from loans taken out to buy company stock when Conseco was flying high, shortly before it plunged into bankruptcy, according to the Associated Press.
The lawsuit seeks to recover $28 million in loans covering interest payments on the underlying $70 million Dick took out in loans in the late 1990s to buy company stock, the wire service added.
The lawsuit comes after attempts to settle the claims out of court collapsed.
A month ago, Conseco filed a similar complaint against former CEO Stephen Hilbert, seeking to recover his $218 million balance through litigation and threatened foreclosure on the $19 million mortgage the company holds on his mansion, said the same report.
Dick, along with Hilbert, was pressured to resign in April 2000 after Conseco, choking on a huge amount of debt, announced an earnings restatement and faced allegations it failed to disclose critical information about an acquisition that wound up as a disaster for the company.
Reed Oslan, an attorney with Kirkland & Ellis, which is trying to recover the loan debt, told the AP that Conseco expects to file a separate complaint soon, targeting the $70 million in underlying debt. “Once again, like Mr. Hilbert, Mr. Dick was unwilling to negotiate with us in good faith toward an appropriate settlement,” Oslan reportedly said. “Mr. Dick has considerable wealth available to him, but has denied any willingness to pay an appropriate amount that would allow us to settle. We will pursue all of his assets where they’re held.”
David Kleiman, Dick’s attorney, disputed Oslan’s claims. “Conseco just refuses to acknowledge the fact that Mr. Dick and others have defenses to the claims they are asserting,” Kleiman told the wire service. “They have contractual rights which are being ignored.”
Kleiman, who represents both Dick and Hilbert, said the former will argue that changes in the company’s management and ownership since Dick’s resignation triggered a “change of control” clause that means he is not responsible for repayment.
Oslan told AP that the lawsuit seeks to collect on liens Conseco says it holds on Dick’s private equity investments. Dick pledged the investments as collateral during negotiations in 2000 over the unpaid balance, Oslan added.
The company says Dick has repaid none of his debt — a claim Kleiman disputed, the wire service reported.
Hilbert is the biggest debtor and Dick is No. 3 among 11 former Conseco officers and directors who accepted company-backed bank loans to buy stock in 1996, the AP notes. Five of the 11 are in litigation with Conseco, while talks are continuing with others to settle their debts. (Loans to corporate officers are now barred under the Sarbanes-Oxley Act.)
Oslan told AP that the 11 collectively owed more than $676 million, including $190 million in interest since 1996. During its bankruptcy, Conseco said it had recovered only $64 million of the debts.
- Leo Mullin resigned as chairman and CEO of Delta Air Lines Inc. He will step down as CEO on January 1 and remain chairman until Delta’s annual meeting on April 23, 2004. Gerald Grinstein, a 16-year member of Delta’s board, was named CEO, effective January 1. Delta’s stock closed up about 6 percent on the news. The airline has lost about $2.5 billion over the past two years, and Mullin has been unsuccessful in his attempt to secure pay concessions from his pilots.
- Delphi Financial Group Inc. said its board of directors approved a 3-for-2 common stock split and a 50 percent increase in its dividend payout. Robert Rosenkranz, the company’s chairman and CEO, cited “the newly favorable federal tax treatment of corporate dividends” as a reason for the dividend hike.
- Sprint Corp. said it would cut about 2,000 jobs, or about 3 percent of its workforce, because of a weakening in Sprint’s business.