CFOs On the Move
William Demchak, who “took a sabbatical” from running structured finance at J.P. Morgan Chase & Co. just as it came under fire for its deals with Enron, popped up as the new CFO of PNC Financial Services Group Inc., a bank that incurred SEC wrath this past summer for “camouflaging” bad loans in three special-purpose entities…. Embattled Tyco International Ltd. named David FitzPatrick, formerly of United Technologies, as CFO to replace Mark Swartz, who resigned in August and was indicted in September along with former CEO Dennis Kozlowski…. Energy firm Dynegy Inc. named former CFO Louis Dorey VP of finance.
And Justice for All?
CFOs facing civil or criminal trials today might wish they had settled or done their time already. “It’s very, very difficult to represent a CFO in today’s climate,” says attorney Arthur Lemann III, who unsuccessfully defended former Media Vision Technology Inc. CFO Steven Allan this past summer against five criminal counts of fraud. “The problems today with CFOs have affected the stock market in such a way that everybody on the jury was affected economically, not just morally.”
Allan and others accused of criminal accounting fraud committed before July 30 won’t be subject to extended jail sentences allowed by the Sarbanes-Oxley Act of 2002. But lawyers say the public outrage makes it more likely that they’ll be found guilty. “Am I concerned about the climate? Of course,” says appeals attorney Peter Goldberger, who represents former Leslie Fay CFO Paul Polishan, convicted of securities fraud last January and sentenced to nine years. Polishan has filed an appeal, but even that could prove a Pyrrhic victory. “He can’t face a more severe sentence, but he might have a harder time getting a fair trial,” says Goldberger.
Meanwhile, according to defense lawyers, local public outrage against white-collar criminals has former Rite Aid Corp. executives, including CFO Frank Bergonzi, petitioning to have their criminal trial moved out of Harrisburg, Pa., which is near the company’s headquarters.
And it seems even those who settled cases with the SEC and thought they were free and clear might not escape the long arm of the Justice Department, which can bring criminal charges up to five years after an allegedly illegal act occurs. Former Sunbeam CEO Al Dunlap and CFO Russell Kersh, for example, reached a final settlement with the SEC in early September, agreeing to pay fines of $500,000 and $200,000, respectively, after settling with shareholders for $15 million and $250,000, respectively, in July and August. Within days of that supposedly final judgment, however, their attorney, Donald Zakarin, revealed that Justice was talking to sources at Sunbeam in the apparent hope of launching its own investigation. –Alix Nyberg
More than 80,000 U.S. employees of Arthur Andersen, which closed its doors on August 31, hit the job market this summer. Many were hired by the Final Four accounting firms. Deloitte & Touche, for example, absorbed most of the firm’s tax practice. Robert Half International, meanwhile, created a new unit, Protiviti, composed of Andersen business-risk consultants.
Even those tainted by scandal have landed gigs: Melvin Dick, the audit partner who skirted congressional questions about Andersen’s WorldCom engagement, was named CFO of retailer Coldwater Creek. But who would have predicted a happy ending for the firm’s Houston-based partners, hailing from the epicenter of the demise?
Former partners Warren White and E.J. Huntley say Houston staffers were flooded with job offers as Andersen wound down. “The educated public knew there were a few employees who made mistakes, but they also knew there were 80,000 other U.S. employees, and Andersen was considered the gold standard for a reason,” says Huntley.
That doesn’t mean the firm’s downfall wasn’t tough. Like many Andersen partners, both men had spent their entire careers at the firm and invested substantial capital in it. But instead of packing it in, the two bought out of their noncompetes, took their staff and clients, and launched Avail Consulting LLC, a Houston-based valuation-services firm.
Houston partners who were near retirement, however, aren’t so optimistic, says White. “For a lot of the older partners, this was the pinnacle of their careers,” he says. “It was their entire sense of identity. They had diddly to do with Enron, but suddenly, it’s all gone.” – Kris Frieswick