In May 1997, Rollins Environmental, Inc. ("Rollins"), the largest hazardous waste incineration company in North America, acquired Laidlaw's hazardous and industrial waste division and changed its name to LES. LES' financial strategy was to grow through acquisitions. LES acquired Old Safety-Kleen in April 1998 for $2.1 billion, with LES paying $18.30 in cash per share and 2.8 LES shares for each Old Safety-Kleen share (including those tendered in response to earlier offers). As part of the Merger, certain Defendants who held executive positions with LES assumed similar positions with the new combined entity, effectively assuming management control over the Company. On June 22, 1998, LES announced that effective July 1, 1998, it would begin doing business as "Safety-Kleen."
John W. Rollins Sr. died in 2000, but he apparently created a culture at Safety-Kleen that played fast and loose with numbers. How did the scheme work? Federal prosecutors described it when they indicted four Safety-Kleen executives in 2002:
The government alleged that the executives misled investors by materially overstating Safety-Kleen's revenue from at least November 1998 through March 2000 to meet Wall Street's pro-forma profit projections.
According to the complaint, Safety-Kleen executives used inappropriate accounting adjustments and other gimmicks after realizing they wouldn't meet projected cost savings of $500 million related to the April 1998 merger with Canadian-based Laidlaw Environmental Services.
To meet quarterly earnings estimates, they improperly recognized revenue, operating expenses and reserves. The executives also fraudulently recorded $38 million from speculative derivative transactions, the government said.
By using the improper accounting adjustments, Safety-Kleen overstated its quarterly earnings by 40 percent to 158 percent from 1998 to 2000, the government said.
Safety-Kleen later restated its financial results downward by $534 million for fiscal years 1997 through 1999 after the accounting troubles surfaced. The Columbia, S.C.-based firm reported a fiscal 2000 loss of $833 million.
The bottom line? A Rollins company engaged in more than $500 million of accounting fraud. Among those named in lawsuits related to the fraud were John W. Rollins Jr. (Ted Rollins' brother) and Henry B. Tippie, an Austin, Texas, resident who long has been hailed as the financial guru behind many of the Rollins enterprises. Tippie is such a wizard with numbers that the business school at the University of Iowa is named for him. Yep, Iowa has the Henry B. Tippie College of Business--even though its namesake has clear ties to massive accounting fraud.
Interestingly, neither Tippie nor Rollins Jr. wound up being targeted for criminal prosecution. The fall guys would be Controller William Ridings, who pleaded guilty to conspiracy and other charges in 2002, and Chief Financial Officer Paul Humphreys, who pleaded guilty to securities and bank fraud charges in 2007.
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