The former chief financial officer and the former chief executive officer of hazardous-waste disposal company Safety-Kleen Corp. will pay fines as part of a final judgment against the pair for their role in an accounting scandal.
The complaint by the Securities and Exchange Commission, filed in December 2002, alleged that from at least November 1998 through March 2000, then-CFO Paul Humphreys and then-CEO Kenneth Winger engaged in a massive accounting fraud by materially overstating the company’s revenue and earnings in financial reports and press releases in order to meet Wall Street’s earnings projections.
The executives also fraudulently recorded about $38 million of cash that was generated by entering into speculative derivatives transactions, added the SEC, further distorting company’s true financial picture.
The commission accused Humphreys of being the ringleader for the fraudulent scheme and of trying to create the illusion that predicted cost savings and business synergies from two large acquisitions were being achieved.
“In fact, the expected savings had not materialized, the company’s business was declining rapidly, and the company was facing a severe cash flow problem,” maintained the SEC’s complaint. “To make up for the earnings shortfall, Humphreys recorded, or directed others to record, numerous adjustments that were not in conformity with generally accepted accounting principles.”
According to the complaint, Winger signed Safety-Kleen’s financial reports and knew or was reckless in not knowing that the financial statements contained in those reports were materially false and misleading.
In December 2002 Humphreys was indicted in federal court in New York for the allegations described in the SEC’s complaint. Former Safety-Kleen controller William Ridings pleaded guilty earlier that month to securities fraud and implicated Humphreys, according to reports published at the time.
Humphreys will pay more than $150,000 in fines and Winger will pay about $440,000, according to the SEC. Each is permanently barred from serving as an officer or director of a public company and permanently enjoined from violating the antifraud provisions of the federal securities laws. Humphreys is also enjoined from violating the SEC’s books and records provisions.