On January 3, 2008, the U.S. District Court for the Northern District of Illinois ordered Waste Management Inc.’s former CFO to pay more than $4 million to the Securities and Exchange Commission (“SEC”) in civil penalties and disgorgement. The final judgment comes more than a year after a jury found Waste Management’s former CFO liable for securities fraud, falsifying company books and records, lying to auditors and aiding and abetting Waste Management’s own securities law violations.
In the SEC’s complaint filed in March 2002, the SEC charged the founder and five other former top officers of Waste Management with perpetrating a massive financial fraud lasting more than five years. The SEC complaint alleged that Waste Management’s former CFO was primarily responsible for executing the fraudulent scheme, and that he ordered the destruction of damaging evidence, misled Waste Management’s audit committee and internal accountants, and withheld information from outside auditors. Waste Management’s former CFO allegedly profited by more than $900,000 from his fraudulent acts.
The $4.16 million that Waste Management’s former CFO will have to pay to the SEC represents $831,500 in bonuses he received during the period in question, $1.25 million in interest on the bonuses, and a civil penalty of $2.08 million. The other five Waste Management executives charged in the SEC’s complaint previously settled with the SEC.
The judgment against Waste Management’s former CFO is comprised of penalties and disgorgement. Accordingly, Waste Management’s former CFO will likely not be able to obtain any coverage for the judgment under a typical D&O insurance policy. Most D&O insurance policies specifically exclude coverage for penalties, while disgorgement payments are typically treated as uninsurable obligations as a matter of public policy.