In 2005, the Securities and Exchange Commission (SEC) announced that several executives of Waste Management, Inc. had engaged in fraudulent accounting practices to inflate the company's reported earnings. The SEC litigation release named several executives, including former CEO A. Maurice Myers, former CFO James E. Koenig, former Senior Vice President Bruce D. Tobecksen, and former Chief Accounting Officer Thomas C. Hau.
A. Maurice Myers and Bruce D. Tobecksen both settled with the SEC without admitting or denying the allegations. Myers agreed to pay a civil penalty of $300,000 and to reimburse the company for $30 million in incentive-based compensation that he had received during the period of the fraudulent accounting. Tobecksen agreed to pay a civil penalty of $50,000 and to reimburse the company for $4.4 million in incentive-based compensation that he had received.
James E. Koenig and Thomas C. Hau both faced criminal charges in addition to the SEC's civil charges. They were convicted of securities fraud and conspiracy and each sentenced to five years in prison and ordered to pay a fine of $5,000 and $50,000, respectively.
In my opinion, the punishment for the executives was appropriate given the severity of the fraudulent accounting practices they engaged in. The executives breached their fiduciary duties to the company and its shareholders by intentionally inflating earnings, which harmed investors and undermined the integrity of the financial markets. The fines and reimbursements imposed by the SEC and the criminal penalties imposed by the courts served as a deterrent to other executives who might be tempted to engage in similar fraudulent behavior.