Names In the News

Corporate Pollution Kills

Pollution from eight utility companies cited by the Justice Department in 1999 and 2000 for violating the Clean Air Act leads to nearly 6,000 premature deaths yearly, according to a report released in April.

The analysis also estimates that pollutants from these companies lead to 140,000 asthma attacks and 14,000 cases of acute bronchitis every year.

The study was prepared by Abt Associates, one of the Environmental Protection Agency’s (EPA) primary technical consultants on clean air.

It is based on likely emissions in 2007 considering expected reductions under the federal government’s current acid rain program.

Eric V. Schaeffer, who was chief of civil enforcement for the EPA until he resigned last month, released the report.

“This report shows how the Bush administration’s failure to enforce the Clean Air Act is a serious threat to public health,” says Schaeffer. “Many children and families suffer the misery of asthma, bronchitis and even premature death because of the pollution coming from these eight utilities. From my experience inside the EPA, I know that these companies would be a lot closer to cleaning up their acts if the White House could find the courage to say no to the energy lobbyists and enforce the law.”

The eight companies are American Electric Power (AEP), Cinergy, Duke, Dynergy, First Energy, SIGECO, Southern Company and the TVA.

Xerox: Copying Enron

Xerox has settled a major suit filed by the Securities and Exchange Commission (SEC) in April in connection with a wide-ranging, four-year scheme to defraud investors.

The SEC’s complaint alleges that from at least 1997 through 2000, Xerox used a variety of what it called “accounting actions” and “accounting opportunities” to meet or exceed Wall Street expectations and disguise its true operating performance from investors.

These actions, most of which violated generally accepted accounting principles, accelerated the company’s recognition of equipment revenue by more than $3 billion and increased its pre-tax earnings by approximately $1.5 billion.

Xerox agreed to settle the SEC’s complaint by consenting to the entry of an injunction for violations of the antifraud and other provisions of the federal securities laws, restating its financials for the years 1997 to 2000, agreeing to a special review of its accounting controls, and paying an unprecedented $10 million penalty.

“Xerox used its accounting to burnish and distort operating results rather than to describe them accurately,” says Stephen M. Cutler, the SEC’s director of enforcement. “For Xerox, the accounting function was just another revenue source and profit opportunity. As a result, investors were misled and betrayed.”

The accounting actions, which Xerox called “one-time actions,” “one-offs,” “accounting tricks” and “accounting opportunities,” frequently were approved, implemented and tracked by senior Xerox management.

The accounting actions had an enormous impact on Xerox’s reported performance. For example, in the fourth quarters of both 1998 and 1999, accounting actions generated 37 percent of Xerox’s reported pre-tax profit. The SEC’s complaint further alleges that by 1998, nearly $3 of every $10 of Xerox’s annual reported pre-tax earnings resulted from undisclosed accounting actions.

Wasting Accounting Rules

The Securities and Exchange Commission in April charged the founder and five other former top officers of Waste Management Inc. with perpetrating a massive financial fraud lasting more than five years.

In a lawsuit filed in U.S. District Court in Chicago, the SEC charges that the defendants engaged in a systematic scheme to falsify and misrepresent Waste Management’s financial results between 1992 and 1997.

The complaint names Waste Management’s former most senior officers, including Dean L. Buntrock, the company’s founder, chair of the board of directors, and chief executive officer during most of the relevant period.

“Our complaint describes one of the most egregious accounting frauds we have seen,” said Thomas C. Newkirk, associate director of the SEC’s Division of Enforcement.

The complaint alleges that Buntrock was the driving force behind the fraud. He set earnings targets, fostered a culture of fraudulent accounting, personally directed certain of the accounting changes to make the targeted earnings, and was the spokesperson who announced the company’s phony numbers, according to the SEC. At the same time, Buntrock posed as a successful entrepreneur. With charitable contributions made with fruits of his ill-gotten gains or money taken from the company, Buntrock presented himself as a pillar of the community, the SEC charges.

For example, just 10 days before certain of the accounting irregularities first became public, according to the SEC, Buntrock enriched himself with a tax benefit by donating inflated company stock to his college alma mater to fund a building in his name. He was the primary beneficiary of the fraud, the SEC alleges, and reaped more than $16.9 million in ill-gotten gains from, among other things, performance-based bonuses, retirement benefits, charitable giving, and selling company stock while the fraud was ongoing.

— Russell Mokhiber