Accounting & Tax

$284 Million Ends Safety-Kleen Lawsuit

Last year, the SEC found that the company's former CEO and CFO had engaged in fraud; this year, they're on the hook for $200 million.
Dave CookApril 27, 2005

Institutional bondholders have won a $200 million judgment against the former chief executive officer and chief financial officer of hazardous-waste disposal company Safety-Kleen Corp., reported the Dallas Business Journal. The bondholders also reached a settlement in which PricewaterhouseCoopers and several Safety-Kleen directors will pay a total of about $84 million, according to the Associated Press.

Safety-Kleen had filed for bankruptcy protection in 2000 after restating its financials downward by a total of more than $500 million for the three previous fiscal years. According to the bankruptcy filing, added the Journal, the company owed more than $1.6 billion to its top-tier lenders; the plaintiffs in this lawsuit, led by American High Income Trust, were holders of Safety-Kleen high-yield debt.

Chief Judge Joseph Anderson of the U.S. District Court for South Carolina, where the company had been headquartered, ruled against former CEO Kenneth Winger and former CFO Paul Humphreys without sending the seven-week case to the jury, according to the AP. The lead counsel for the bondholders, Grant & Eisenhofer attorney Stuart Grant, said that his clients have no illusions about collecting $200 million from Humphries and Winger, but Grant added that for the next 20 years, the defendants’ assets will be subject to seizure, reported the wire service.

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“Do I expect to collect every asset they have? Yes,” said Grant, according to the AP. The bondholders “want these people to basically have their assets taken away.”

Last year, after the Securities and Exchange Commission found that the two executives had engaged in fraud as part of the Safety-Kleen overstatements, they were fined by the commission and permanently barred from serving as officers or directors of a public company.

Last month, PricewaterhouseCoopers — the company’s outside auditor when the bonds were issued, noted the Journal — agreed to settle for $48 million. A PwC spokesman said the audit firm admitted no wrongdoing but settled to “avoid the uncertainty of a trial,” according to the AP. The wire service added that the insurer for 11 of the company’s outside directors will pay $36 million and that one former director, former chief operating officer Michael Bragagnolo, will pay an additional $10,000 himself.

Safety-Kleen Systems Inc., which emerged from bankruptcy in 2003 as a private company with a slightly different name, is not connected with the lawsuit, reported the Journal. “This is strictly former folks who were associated with the company,” spokesman John Kyte reportedly said.