Human Capital & Careers

DPL Sues Former CFO, Other Execs

The utility company alleges that three former executives circumvented the compensation committee and accelerated their own pay packages.
Marie LeoneAugust 27, 2004

Ohio-based utility DPL Inc. sued three ex-executives, including a former interim chief financial officer, in an effort to recover more than $33 million in deferred compensation payouts, according to court documents. DPL, the parent of Dayton Power & Light Co., accused the trio of amending the company’s compensation plan without notifying the compensation committee, so payments could be accelerated.

The suit, filed in Ohio’s Montgomery County Court of Common Pleas, alleged that former chairman Peter H. Forster, former interim CFO Caroline E. Muhlenkamp, and former president and chief executive officer Stephen F. Koziar Jr. “engaged in a multi-step scheme” to withdraw $33 million from a deferred compensation plan before the end of 2003.

DPL maintained that as a result of the executives’ conduct, the company lost the ability to deduct a compensation expense on its federal income tax, took a hit to net income of more than $9 million, and incurred “hundreds of thousands of dollars in tax penalties” for late payment.

An attorney for Forster and Muhlenkamp called the suit mean-spirited and without merit, according to The Wall Street Journal. Indeed, according to the paper, Forster and Muhlenkamp filed a $50 million-plus lawsuit against DPL in July, claiming that they were improperly denied compensation and benefits after they resigned in May.

Their resignations, and the retirement announcement of Koziar, are tied to an internal investigation into charges of self-dealing made in March by a DPL controller.

On December 30, 2003, according to DPL’s lawsuit, Muhlenkamp sent a letter to the utility’s bank authorizing cash distributions of $7.1 million (for Forster), $9.7 million (for Koziar) and $16.3 million (for herself). The distributions were free of the 10 percent early-withdrawal penalties that DPL would otherwise have imposed. The court filing also alleged that Muhlenkamp authorized the payouts without confirming that the compensation committee had received “complete and accurate information prior to being asked to approve the amendments and without obtaining the signature of any officer or director who did not have an interest in the transaction.”

DPL’s lawsuit also singled out Muhlenkamp several times for breaching her fiduciary responsibilities. For example, regarding the self-dealing probe, the court filing noted that “even though Muhlenkamp was the CFO, she was rarely in the office, was very difficult to reach, and failed to return telephone calls or electronic e-mail messages,” which made the investigation difficult to complete. Forster was also accused of obstructing the investigation that eventually led to the discovery of the $33 million withdrawal.

In addition, the lawsuit chastised Muhlenkamp for exhibiting “a general lack of candor” with the company’s accounting firm, KPMG, which caused the 2003 audit process to break down. Despite a direct request from the audit committee chair that Muhlenkamp remain in the office to assist the auditors, the court filing maintained that she left the country during preparation of the company’s 10-K.