Risk Management

United Rentals’s ex-CFO Indicted

Sham transactions were intended to cover up the company's true financial condition and hit financial targets, the government claims.
Stephen TaubApril 7, 2008

The former CFO and president of United Rentals has been indicted for conspiracy, securities fraud, insider trading, and making false filings with the Securities and Exchange Commission.

The executive, John Milne, worked to artificially increase the company’s stock price; conceal its true financial condition — including earnings and earnings-per share figures — from stock-market analysts, the SEC, and the public; and misrepresent its books, records, and accounts to its auditors, according to Nora Dannehy, Acting United States Attorney for the District of Connecticut.

Milne also allegedly sold 850,000 shares of United Rentals stock, generating proceeds of more than $22 million, while in possession of material non-public information about the company.

He was charged with three counts of securities fraud, one count of insider trading, and three counts of making false statements to the SEC. If convicted on all charges, he could face up to 75 years in prison and a fine of up to $13.25 million. The government also wants him to forfeit more than $17 million, representing his proceeds from the alleged conspiracy and insider trading.

The SEC separately charged Milne with financial fraud. According to the complaint, from 2000 through 2002 Milne and another former United Rentals CFO, Michael Nolan, engaged in a series of fraudulent transactions to allow URI to meet earnings forecasts and analyst expectations. The regulator alleges that Milne and Nolan carried out the fraud through a series of interlocking three-party transactions, structured as “minor sale-leasebacks,” to allow URI to recognize revenue prematurely and inflate profits generated from the sales.

As a result of the fraud, URI materially overstated its financial results in its annual reports for fiscal years 2000 and 2001, and its quarterly reports for the periods ended June 30, 2001 and March 31, 2002, according to the SEC.

The SEC complaint further alleges that shortly after URI announced 2001 and 2002 year-end results, Milne sold about $38 million of URI stock that he owned, knowing that the company’s announced financial results were materially overstated.

United Rentals fired Milne in 2005 “for cause,” because he would not respond to questions related to an SEC inquiry into the matter.

Nolan admitted in December to making false filings with the SEC and faces up to 10 years in prison and a $22 million fine, and he must pay restitution of about $1 million. He also settled fraud charges with the SEC. Also that month, the SEC charged Joseph Apuzzo, a former CFO of Terex Corp., with aiding and abetting the fraudulent scheme.

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