6 ex-Anicom execs indicted
chicagotribune.com
By Greg Burns
Tribune senior correspondent
March 14, 2003
A group of senior executives from a wire and cable company controlled by Chicago's wealthy Anixter family was indicted Thursday, accused of participating in a scheme that inflated sales and profits for three years before the company plunged into bankruptcy.
Separately, leaders of the Anixter clan tentatively agreed to settle a class-action lawsuit accusing them of civil fraud in connection with the company's failure. While denying wrongdoing, former Anicom Inc. Chief Executive Scott Anixter and his father, the Chicago fortune-builder Alan B. Anixter, agreed to personally pay $12.4 million of the proposed $18 million settlement, according to lawyers in the case.
The indictment targeted the Anixters' handpicked executive team, including former Chief Financial Officer Donald Welchko of Willow Springs and former President Carl Putnam of Naperville.
Also charged were executives John Figurelli of Libertyville, Daryl Spinell of Naperville and Ronald Bandyk of LaGrange, as well as Renee LeVault of Huntley, a billing manager.
Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, declared that prosecuting "corporate chieftains" who falsify financial data is a top priority. "Boardrooms do not provide sanctuary from prosecution," he said. "When the books are cooked, we will protect the integrity of our financial markets by punishing those responsible at the highest level."
Fitzgerald declined to comment on the absence of charges against Anicom's founding family or its outside directors, among them Chicago insurance executive Michael Segal, indicted in a separate federal case. Fitzgerald noted that the defendants are accused of misleading the company's auditor, PriceWaterhouseCoopers. "The investigation remains open," Fitzgerald said.
Anicom filed for bankruptcy in January 2001 and closed shortly afterwards. During 1998, three of the once high-flying company's 10 biggest sales were fictitious, and in 1999, its top customer was a fake, the indictment charges. The phony sales totaled at least $24 million.
A lawyer for Welchko said the case reflects federal law enforcement zeal in the wake of corporate scandals. "The feeding frenzy out of Washington makes the indictment no surprise," said Leo Cunningham, of Wilson Sonsini Goodrich & Rosati. "Most accounting mistakes are just that, honest mistakes, and that describes Anicom. Mr. Welchko relied on the accounting expertise of others, and he always intended the best for Anicom and its investors."
A lawyer for Spinell said his client is cooperating with federal prosecutors. As the facts of the case emerge, said Jeffrey E. Stone of Chicago, "His very minor role will become much clearer."
Attorneys for the others indicted either could not be reached Thursday or declined to comment.
Securities fraud charged
All six were charged with three counts of securities fraud. Putnam and Welchko each were charged with five counts of bank fraud, five counts of making false statements to financial institutions and eight counts of making false statements to the Securities and Exchange Commission. The pair were charged separately with four counts each of falsifying Anicom's financial books and records. Welchko alone was charged with one count of obstruction of justice related to deleted references to a fictitious customer reported in a SEC filing.
The charges come less than a year after the SEC brought a civil suit against the same half-dozen Anicom employees. In October, PriceWaterhouse agreed to pay $21.5 million to settle its part of the class-action suit, which accused it of ignoring management fraud to protect a lucrative stream of consulting fees. PriceWaterhouse did not admit wrongdoing.
The Anixters set out to build Anicom into a $1 billion company when it was launched in 1993. Heading it was Alan Anixter, a legendary entrepreneur, who sold his homegrown Anixter Bros. Inc. wire and cable company to a Sam Zell company in the 1980s, then launched Anicom to compete with his old firm. Anixter's attorneys have said he had no day-to-day operational role in the company, and was unaware of wrongdoing.
Within a few years after Anicom sold stock to the public in 1995, sales approached a half-billion dollars, its workforce had expanded to 1,200 and its stock had soared as it snapped up competitors in the fragmented wire and cable business.
Its board included Segal of the Near North Insurance brokerage, known for his political clout. Unrelated to Anicom, he was indicted on charges of looting some $20 million from a company trust fund. Segal, who pleaded not guilty, served on Anicom's audit committee.
Also on Anicom's board was investor Peter Huizenga, co-founder and former director of Waste Management Inc., which overstated earnings by $1.4 billion in the mid-1990s.
For the post of chief executive, Anixter tapped his son, Scott, who had pleaded guilty to a reduced misdemeanor charge on the eve of trial in a FBI commodity-trading sting a decade ago. He was sentenced to probation.
The Anixters recruited Harris Bank's Welchko as chief financial officer and Putnam, of their previous wire and cable company, to manage operations. Putnam took over from Scott Anixter as Anicom's chief executive in September 1999.
Class-action suit nearly settled
Much of the alleged wrongdoing that prosecutors highlighted Thursday was first outlined in the class-action lawsuit that has been tentatively settled, subject to approval by U.S. District Judge John W. Darrah.
The $18 million settlement from the Anixters and Anicom's insurance company, combined with the previous PriceWaterhouse payout in the case, will be divided among three groups with claims on the former company. It is expected to yield at least an $11 million recovery for Anicom's shareholders, $15 million for its banks and $11 million for creditors, according to attorneys in the case brought by Houston law firm Susman Godfrey.
Anicom got weaker as it appeared to grow
1993
The Anixter family, 30-year veterans of the wire and cable industry, forms Anicom to compete against the Anixter Bros. Inc. it sold to Chicagoan Sam Zell.
1995
Anicom offers stock to the public at a split-adjusted $3 per share in February. Stock in a secondary offering in November is sold at $4.50 a share.
1997
Anicom acquires a dozen privately owned wire and cable distributors for more than $100 million. Additional stock is issued through private placements to enthusiastic investors.
1998
Company executives begin overstating sales and earnings by creating fictitious sales and fraudulent billings, according to Thursday's announcement. Anicom appeared to be growing quickly, but operations were weakening.
1999
Anicom books more than $10 million in sales of fiber-optic cable to a fictitious customer called SCL Integration Corp., the indictment charges. Anixter executives promote the company's prospects, but in the summer announce that earnings would fall short of Wall Street expectations.
2000
In July, Anicom announces an investigation of possible accounting irregularities. Stock trading is suspended. In November, the company says it had falsely reported $34.4 million in pretax net income.
2001
Anicom files for bankruptcy protection in January, then liquidates. The stock, which had peaked at $19 per share in 1997, becomes worthless.
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