Ashland Settles Dirty Reserves Case

Ashland settles SEC charges, raised initially by a whistleblower who invoked Sarbox protections, that the company boosted income by understating it...
Stephen TaubNovember 30, 2006

The Securities and Exchange Commission has settled charges against Ashland Inc. and a former employee for understating the chemical company’s environmental reserves.

In its order, the Commission found that William C. Olasin, the company’s former director of environmental remediation, improperly reduced Ashland’s cost estimates for remediating environmental contamination at dozens of sites across the country.

Ashland then materially understated its environmental reserve and overstated its net income in reports filed with the Commission in 1999, 2000, and 2001, according to the regulator.

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According to Ashland’s annual report, filed earlier this week, the understatements to environmental reserves totaled $12.2 million in 1999 and $12.6 million in 2000.

The SEC said internal whistle-blowers brought the issue to the attention of the company.

According to the SEC, three engineers who worked for Olasin raised questions in 2002 about the environmental reserve in internal code of conduct questionnaires, with one engineer specifically alleging that Olasin was improperly reducing the reserve.

The SEC said Ashland conducted an internal audit in response, but failed to discover most of Olasin’s improper reductions.

The SEC pointed out that the principal complainant believed that he was being subjected to retaliation, and filed a complaint with the Department of Labor under the whistleblower protection provisions of the Sarbanes-Oxley Act. The engineer ultimately settled his complaint against Ashland and left the company, the SEC added.

Under the settlement with the SEC, Ashland was ordered to cease and desist from committing or causing future violations. It also agreed to strengthen its internal controls for determining its environmental reserve. The company also agreed to hire both its its independent auditor and an outside firm to oversee the company’s procedures, both for setting its environmental reserves and for handling employee complaints.

Olasin settled without admitting or denying the findings, and was ordered to cease and desist from committing or causing future violations.