Will Justice Department Go After Dunlap?
The New York Times
September 6, 2002
Floyd Norris
TIMING is everything. Especially in fraud.
Executives of companies accused of accounting fraud these days tend to
be treated as public enemies. They are paraded before Congressional
committees. They are arrested and put through "perp walks" while cameras record their humiliation.
And then there is Albert J. Dunlap, a man who loved his reputation as Chainsaw Al, the tough executive who fired thousands of people and bragged that he deserved the $100 million he got when Scott Paper, a company he was credited with turning around, was sold to Kimberly-Clark in 1995.
This week Mr. Dunlap settled a civil suit filed by the Securities and Exchange Commission
by paying a $500,000 fine and agreeing never to be an officer or director of a public company.
He neither admitted nor denied the S.E.C.'s claim that he masterminded an accounting fraud when he was
running the Sunbeam Corporation.
Had that fraud erupted last month, there is little doubt that there would have been the
same type of publicity that greeted the Enron, WorldCom and
Adelphia debacles. But Sunbeam's accounting blew up in 1998 and the
S.E.C. allegations were filed in the spring of 2001, when few really cared
about accounting fraud.
Mr. Dunlap's good fortune in timing did not stop there. It now turns out
that the S.E.C. believes that there was funny accounting at Scott Paper
when he was running it. That claim was made in March, when Kimberly-Clark
agreed to a cease-and-desist order barring it from further accounting
sins. The S.E.C. concluded that Kimberly-Clark had hidden losses
that emerged because Scott's preacquisition books did not reflect $99 million in
expenses.
But the S.E.C. did not emphasize the Dunlap connection, and the action
came during the height of the Enron furor. Few noticed.
To be sure, the S.E.C. did not discuss who at Scott knew of the dubious
accounting, and the commission never looked into Scott's books when Mr.
Dunlap was running the company.
But Mr. Dunlap is unique among executives of companies that collapsed
after accounting frauds in that such allegations have dogged his career.
Back in the 1970's, he was president of Nitec Paper, whose profits
amazed the owners and led them to agree to pay Mr. Dunlap $1.2 million. But
auditors concluded the profits were phony, and Nitec filed suit claiming
that Mr. Dunlap had directed an accounting fraud. Those allegations were
never proved, and Mr. Dunlap put the matter behind him by not telling
future employers he had worked for Nitec.
The question now is whether the Justice Department will bring criminal
charges in the Sunbeam case. Prosecutors will not say if they are
investigating, and neither will Mr. Dunlap's lawyer.
Fraud cases can be difficult to prove, and prosecutors may hesitate
to commit the needed resources. If he were charged, Mr. Dunlap would probably
claim, as he did at Nitec, that he was not an accountant and had no responsibility
if the accounting was wrong.
But there is little doubt that Mr. Dunlap would be facing a criminal
investigation if the Sunbeam fraud had erupted last week. If prosecutors make
no effort to build a case against him now, then one must wonder whether
it is not the crime but the public outrage that determines prosecutorial
priorities.
Mr. Dunlap fooled investors for years. Had he not succeeded in concealing his past,
he might never have risen to the top of American business. Had
the S.E.C. looked at Scott's books while he was there, perhaps he would have
been stopped earlier. But he was not.
He made his millions while fictitious profits were posted and investors
lost billions. If the Justice Department does nothing, Mr. Dunlap will live out
his golden years as a very wealthy man.
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