Risk Management

Fraud Gets Ex-CFO 70 Months

The former Safety-Kleen finance chief conspired to manipulate financials to reach earnings targets.
Stephen TaubNovember 8, 2007

Paul Humphreys, the former CFO of Safety-Kleen, was sentenced to 70 months in prison after earlier pleading guilty to securities and bank fraud charges.

He was indicted in December 2002 for a scheme to manipulate Safety-Kleen’s financial statements in 1998, 1999 and 2000, which included more than $250 million in bogus adjustments, according to U.S. Attorney Michael Garcia.

The indictment alleged that the fraud was part of an attempt to meet earnings targets set at the time Rollins Environmental Services acquired the hazardous-waste-disposal company in 1998.

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Humphreys pleaded guilty in June of this year to conspiracy to commit securities fraud, make false statements in SEC filings, falsify books and records, make false statements to the company’s auditors, and commit bank fraud; fraud in connection with the purchase and sale of Safety-Kleen’s common stock; and bank fraud. He had faced up to 45 years in prison and $2.25 million in fines.

After the acquisition, company executives predicted to investors that within a year the company would record annual earnings of about $500 million because of synergies and cost savings, according to the indictment.

When the company fell short of that target, Humphreys and others took part in an illegal scheme to falsify Safety-Kleen’s general ledger and its financials, according to Garcia. They artificially inflated the earnings disclosed by Safety-Kleen in its annual reports, quarterly reports, press releases, and conference calls, the indictment said.

“Humphreys systematically made and directed other Safety-Kleen employees to make a series of false accounting entries, commonly known as ‘top side’ adjustments, to artificially inflate earnings for the quarter,” the indictment added. “These adjustments made Safety-Kleen’s financial statements false and misleading in a number of material respects.”

About 8 to 10 business days after the close of each quarter, senior management held operations conference calls with representatives of various field offices to talk about the quarterly results and compare them with budgeted and prior-year results, Garcia said.

Federal prosecutors charged that Humphreys met with “one or more co-conspirators,” informed them of a higher target earnings number that he wanted the company to publicly report, and discussed “corporate adjustments” they would make to inflate the reported earnings.

The indictment identified two co-conspirators that were not named as defendants: William Ridings, a vice president and the controller of Safety-Kleen and its predecessor entities, and Thomas Ritter, vice president of accounting for the company and its predecessors.

In December 2002, Ridings pleaded guilty to securities fraud and implicated Humphreys.