Another Scumbag CEO
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| Tue, 08-24-2004 - 2:54pm |
Aug. 24, 2004. 07:09 AM
Fired Nortel CEO builds mansion
Took out mortgage worth $3 million on lakefront lot
Bought land soon after taking company's helm
TYLER HAMILTON
TECHNOLOGY REPORTER
Frank Dunn, recently fired chief executive of scandal—plagued Nortel Networks Corp., is in the midst of building a multimillion-dollar lakeside dream home in the heart of Oakville, the Star has learned.
According to land registry documents, the tree-lined waterfront property was bought for $4.3 million cash in August, 2002. The purchase came 10 months after Dunn, former chief financial officer of Nortel, replaced John Roth as CEO of the struggling telecom-equipment giant.
Oakville-based architecture firm Hicks-Pettes Architects Inc. and Coulson Fine Homes of Mississauga are designing and constructing Dunn's new abode, which sources say will likely have a market value between $12 million and $15 million when finished.
"I can't comment, we have to keep our client confidentiality," said Janet Coulson of Coulson Fine Homes when contacted by the Star. "It's a beautiful property," said William Hicks of Hicks-Pettes, who also declined further comment.
Dunn, who already resides in Oakville, did not return calls, nor did his attorney Thomas Heintzman of Toronto-based McCarthy Tetrault LLP.
Brampton-based Nortel announced last week it is cutting another 3,500 employees, bringing to 30,000 a workforce that swelled above 95,000 four years ago. The company, which under Dunn pledged in 2002 to become profitable again, is under criminal investigation by the Royal Canadian Mounted Police and federal authorities in Texas for accounting irregularities stretching back to 2001.
Dunn and two high-ranking financial officials were fired "for cause" in April, followed last week by the termination of another seven executives.
Nortel has said it is also conducting an internal review of its accounting practices, which analysts suspect is focused on bonuses paid to certain senior executives in 2003.
Williams Owens, Nortel's current CEO, said last Thursday the company will demand repayment of 2003 bonuses worth about $10 million (U.S.) that were paid to the 10 dismissed executives, including Dunn. It's estimated that Dunn's 2003 bonuses exceeded $4.5 million.
"It's surprising that Mr. Dunn is apparently undertaking such a large discretionary project at this time," said Charles Smedmor, a forensic accountant with experience in real estate at Toronto-based Smedmor & Associates.
"A concern is whether putting these funds into such a real-estate project may reduce the potential recoveries for Nortel and its shareholders."
The Star visited the property, partly fenced in along a wealthy stretch of Lakeshore Rd. East, and was met with a polite yet determined construction worker, who escorted us off site.
Photographs from the air show a grandiose, partially complete mansion with a built-in custom swimming pool. A boathouse is located at the edge of the water, where a break wall leads to a large boat slip.
Dunn appears to have paid cash for the property, but land registry documents show the ex-CEO took out a mortgage May 10 — 12 days after being fired from Nortel — for $3 million. The mortgage was through Royal Bank of Canada at prime rate less 0.5 per cent. His monthly payments, which began in June, are about $15,000.
Ramy Elitzur, an associate professor of accounting at the Joseph L. Rotman School of Management, said taking a mortgage out on the property makes sense given Dunn's current situation.
"I don't see him being employed by anybody in the industry for some time," said Elitzur. "He probably did it because he wanted to have cash on hand."
In addition to paying for construction of his new home, Dunn faces the prospect of having to pay back his 2003 bonus, or pay huge legal fees trying to keep it. He also faces legal fees related to a number of class-action lawsuits, which allege Dunn and other executives knowing and recklessly misrepresented Nortel's financial situation in 2003 and parts of 2004.
None of these claims have been proven in court.
"He's now in a whole new ballgame in terms of what's going to happen," said Elitzur. "Just to be on the safe side he took the mortgage, I suspect."
Additional articles by Tyler Hamilton

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Here's another one.............
Cooking The Books.
http://www.cbsnews.com/stories/2003/10/08/60minutes/main577217.shtml
If Richard Scrushy, the former CEO of HealthSouth, is finally found guilty of cooking his company's books, he could be sentenced to prison for 100 years or more.
HealthSouth was a Fortune 500 healthcare company that Scrushy created in his hometown of Birmingham, Ala. Federal prosecutors charge that HealthSouth, at Scrushy's direction, falsely inflated its profits by almost $3 billion, to push up the price of its stock.
But when the fraud was revealed, the stock tanked to just pennies a share, leaving thousands of investors holding the bag.
When Scrushy goes to trial early next year, he will try to convince a jury --as he tried to convince Correspondent Mike Wallace last fall -- that even though profits were inflated, he had nothing to do with it.
Whether Scrushy did or didn't do it, no one expected fraud from Birmingham's biggest benefactor.
In Birmingham, you can drive on the Richard Scrushy Parkway, and to the Richard Scrushy Campus at Jefferson State Community College. There's the Richard Scrushy Building, the Richard Scrushy Library and the Richard Scrushy Ball Field.
There used to be a Richard Scrushy Statue, but after someone spray-painted the word "thief" on it, and a radio DJ urged people to pull it down like Saddam's statue in Baghdad, it was removed.
Birmingham's top radio host Paul Finebaum has known Scrushy for 15 years -- through his rise and fall.
“I'll make you this bet, that if Scrushy is indicted and if he goes to jail, it won't be long before his name's on the outside. He'll find a way to make it ‘The Richard M. Scrushy Jail,’" says Finebaum. “I don't think he'd live in a place that didn't have his name on it.”
“There's no evidence of any of that," says Scrushy, when Wallace asked him if he inflated earnings and betrayed his stockholders and employees. "And many of the -- what the people have said is not true.”
Scrushy told Wallace his top financial officers committed the fraud without his knowledge: “You have to rely, you have to trust people. You have to believe. You have to delegate. I mean, you hire them. You pay them good salaries. You expect them to do the right thing. And I signed off on the information based on what was provided to me. And what I was told.”
Here's how the SEC describes what it calls Scrushy’s scheme. Each quarter, HealthSouth's senior officers would present Scrushy with the company's actual earnings, and he would compare them to Wall Street expectations. If the actual results fell short of expectations, Scrushy would tell his management to "fix it" by recording false earnings to make up for the shortfall.
“That is not true,” says Scrushy.
Scrushy started with just $50,000 and built a Fortune 500 company. He showed HealthSouth landmarks to Wallace while he described how his company began 19 years ago.
“One room with one desk and one phone. We put on a suit every day, starched shirts, wore a tie. We had no business. We had no income. We had nothing,” he says. “And we started with a dream and an idea, a business card with our name on it and an idea. That's all we had.”
Scrushy had a medical background, and had been a trained respiratory therapist. He saw that Medicare was paying big money to diagnose and treat the elderly, so he opened clinics that were able to do that with less overhead than the larger hospitals. After that, when he realized that athletic baby-boomers were getting sports injuries that required costly rehabilitation, he specialized in that, too, hiring famous athletes who'd been his clinics' patients to spread the word.
As his business prospered, Scrushy began to buy up other clinical chains, creating his own health-care empire.
”They're operating in 1,700-1,800 health-care facilities, treating almost 100,000 patients a day and almost 50,000 employees. And they're in all 50 states and several other countries around the world,” says Scrushy.
Was he good for Birmingham for a while?
“He was excellent. We became the leader in healthcare. Particularly in sports medicine. Because of Richard Scrushy,” says Finebaum.
But after the scandal, Finebaum said the folks in Birmingham despised him.
Scrushy's world began to come apart last March when one of his chief financial officers went to federal prosecutors and confessed that HealthSouth, at Scrushy's express direction, had been hugely overstating its profits for years.
Prosecutors wouldn't talk on camera before the trial, and they wouldn’t let their witnesses talk to 60 Minutes, either.
So far, 17 former HealthSouth employees have pleaded guilty, including all five of Scrushy's chief financial officers. Scrushy says they did the dirty work, behind his back. But prosecutors say when the CFOs pleaded guilty, they agreed to testify under oath against Scrushy.
Wallace read from the court transcript from when CFO Michael Martin pleaded guilty:
The judge asked Martin, "Did you and Mr. Scrushy discuss the fact that the numbers contained in the filings were false?"
"Yes, sir."
"Did Mr. Scrushy direct you to do something with the numbers?" "Yes sir. He told me to inflate the numbers."
“To fix the numbers so that they met Wall Street's expectations."
Scrushy says: “So is Mike Martin just a dummy? Just some guy says go do something. Commit a fraud or a crime that would put you in jail and Mike Martin just does it? You don't believe that, Mike? I would never have done that. He is not telling the truth.” says Scrushy.
Tad McVay, who was CFO until early 2003, pleaded guilty and told the judge that Scrushy was aware that the financial statement contained numbers that were incorrect.
“This is, again, it's not true. I haven't,” says Scrushy. “There are 50,000 people. There are five, you have five people that have made these claims out of 50,000 people.”
But Wallace points out that he's in charge. “That doesn't mean I'm a criminal,” says Scrushy.
McVay told the judge that Scrushy tried to justify it by saying, "All companies play games with accounting."
“I never said that to him and he knows that,” says Scrushy. “I certainly didn't commit the fraud. The people know me. They know I wouldn't instruct somebody to do that.”
So what would be the motive of his CFOs to commit a fraud?
“I really don't want to get into it here. But there's, every one of them has a motive,” says Scrushy, who then told Wallace that what he believed motivated his CFOs to falsely inflate earnings.
“Promotions, bonuses, stock, stock options, an opportunity to make a lot of money. There's incentives in it, tremendous incentives. Power. Greed. There's a lot of reasons for what they did. There was no motive for me to destroy a great company that I built, a company that I loved, my fourth child. There was no reason for me to do that.”
”He benefited more than anybody from this fraud. There's no question about it. One hundred times fold,” says Doug Jones, a former U.S. attorney in Birmingham who has filed a class action suit against Scrushy on behalf of his stockholders.
How did Scrushy make hundreds of millions of dollars from the fraud?
“In his stock options, his salaries, and his bonuses. And he has for years cultivated an image that ‘This is my company, I'm the one that brought this company up. I have my finger on the pulse. I know everything that's going on in this company. I know the numbers,’" says Jones.
“He doesn't have to be an accountant to direct this fraud. Other people may be the ones sitting up there late at night, crunching the numbers and cooking the books. But that doesn't mean that when he says ‘Fix it,’ if that's true, that he's not as much responsible for engineering that train wreck as anybody else.”
It's been suggested that Scrushy had a motive for inflating these figures. He was living high, and he wanted the stock to be high.
“First of all, I didn't phony up the figures. Second of all, you've gotta look at my buying and selling. OK,” says Scrushy. “I didn’t see the stock at a high.”
The stock is now $3, but Scrushy sold $99 million worth of that stock when it was between $10-14.
“When you build something from nothing, you, you should have the right at some point to have some liquidity. That's what every young MBA in America is working toward,” says Scrushy. “So what I did was, you know, the American dream.”
Scrushy was able to get out with $99 million. But what happened to the others who held on?
“I had stock options that were going to go away - $99 million worth going away. I was going away. It was done, I was gonna lose it. What would you have done? What would anybody have done?” asks Scrushy.
What he did was sell high. And to help keep it high, he regularly gave bullish profit predictions to Wall Street analysts and interviewers.
"Well, I think the company should be north of $20 per share right now. Certainly we should be higher than we are now,” said Scrushy on CNBC two years ago when the stock was selling at $15. “I would expect to see the company in the 20's and that's where we're headed, we believe."
Just 12 days later, Scrushy sold more than five million shares of his stock. Now, HealthSouth's board has barred him from even entering any offices of the company he built. And HealthSouth admits that none of its past profit numbers can be trusted.
Scrushy still lives an over-the-top millionaire's life. But now that a jury in Birmingham will probably decide his fate, he wants to downplay his wealth.
He would not let 60 Minutes videotape his four mansions, his collection of antique cars, or his wine cellar, which has bottles worth thousands of dollars apiece. But he wanted us to take pictures of him with his children, and hear from his third wife, Leslie, a Methodist preacher's daughter who believes deeply in the Lord and in her husband.
“I just think he's an amazing man. I'm so thankful to be married to him and I'm thankful every night to finish out my day with him," says Leslie.
“You know, why don't we take the testimony of people who are not felons, who are not admitted liars, and see what they have to say. Let's get their testimony. And they won't say the same thing,” says Scrushy.
“I'm not going to jail. I'm an innocent man. I'm not going to jail.”
But prosecutors disagree. They indicted him on 85 counts, alleging that he masterminded a massive corporate fraud, from which he made more than $250 million.
Now the company is trying to stay out of bankruptcy, while Scrushy is trying to stay out of jail. He pleaded non-guilty, is free on a $10 million bond and is preparing to go to trial next January.
"What happened to Ken Lay? Do you think the enron employees will ever be compensated for their losses?"
I understand that they, the ex-employees,
Another former Enron executive charged with fraud
http://www.chron.com/cs/CDA/ssistory.mpl/business/2759030
Mark Koenig, the former head of Enron's investor relations section, pleaded not guilty this morning to securities fraud charges and is expected to change his plea to guilty later today and enter into a cooperating agreement with the government.
Koenig, who worked closely with both ex-Chairman Ken Lay and ex-Chief Executive Officer Jeff Skilling, appeared before U.S. Magistrate Judge Frances Stacey this morning and was released on bond.
Enron Task Force prosecutor Kathryn Ruemmler appeared in court for the government and agreed to the bond.
Koenig, who worked for Enron from 1985 through 2002, is charged with participating in a scheme to willfully deceive the investing public about the value of Enron stock.
He is accused in many of the same deals included in the indictment of Lay, Skilling and ex-chief accountant Rick Causey.
Because Koenig and his staff drafted earning releases and scripts for conference calls with analysts and he accompanied other executives when talking publicly about the stock, he could be an important witness for prosecutors.
Paula Rieker, who worked under Koenig, has already pleaded guilty to an insider trading charge and is cooperating with the Enron Task Force.
"Enron's publicly reported financial results and filings and its public descriptions of itself, including in certain public statements made by and with the knowledge of Koenig, did not truthfully present Enron's financial positions," the criminal charge said. It said results from operations, cash flow of the company and other facts were distorted or omitted making disclosures and statements misleading.
Koenig, 49 of Kingwood, was not indicted by the Enron grand jury, but rather prosecutors filed the charge independently.
The charge accuses Koenig of involvement in concealing failures at the Enron Energy Services unit through a rigged reorganization. The charge said Koenig knew Skilling misrepresented this in a first quarter 2001 call to analysts.
The charge said Koenig himself mislead analysts about the source on the Internet broadband division's earnings in the same phone call.
The government accused Koenig of making false representations to the public, the Securities and Exchange Commission and to rating agencies in public filings and meetings.
Koenig joined Enron in 1985 as a corporate treasurer and in 1992 he was transferred to the investor relations department where he worked his way up to director.
I rehabbed my knee at a HealthSouth facility here in Seattle.
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I guess that would be good, so that the govt will get more help nailing Lay.
"We would rather try this trial in front of a jury, but it may be very difficult in this atmosphere," Ramsey said Monday, referring to the difficulty of selecting a sympathetic jury in a region with many ex-Enron employees and their families. Without a jury, Lake would decide whether Lay is guilty as charged.
LOL!
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