US Attorney Reports Former Safety-Kleen CFO Sentenced To Five Years 10 Months Prison For $267 Accounting Fraud

LAWFUEL – The Legal Newswire – MICHAEL J. GARCIA, the United States Attorney for the Southern District of New York, announced today that PAUL
HUMPHREYS, the former Chief Financial Officer of Safety-Kleen
Corporation (“Safety-Kleen” or “the Company”), was sentenced in
Manhattan federal court by United States District Judge LAURA
TAYLOR SWAIN to 70 months in prison in connection with his prior
guilty plea to securities and bank fraud charges.

HUMPHREYS, 48, a Canadian citizen, was indicted by a
federal grand jury in December 2002 on charges relating to a
scheme to manipulate Safety-Kleen’s financial statements in
connection with the reporting of more than $250 million in
“adjustments” to Safety-Kleen’s books and records in 1998, 1999
and 2000. It was alleged in the Indictment that the fraud was
part of an attempt to meet earnings targets the Company had
predicted at the time Safety-Kleen was acquired by Rollins
Environmental Services, Inc. (“Rollins”) in 1998.

On June 22, 2007, after surrendering to FBI agents,
HUMPHREYS pleaded guilty to charges of: conspiracy to commit
securities fraud, make false statements in SEC filings, falsify
books and records, make false statements to the Company’s
auditors, and commit bank fraud; fraud in connection with the
purchase and sale of Safety-Kleen’s common stock; and bank fraud.
According to the Indictment filed in Manhattan federal
court: When Rollins acquired Safety-Kleen in 1998, the merged
Company, the shares of which were traded on the New York Stock
Exchange, predicted to the investing public that within one year
of the merger, the Company would realize combined annual earnings
of approximately $500 million because of “synergies” and cost
savings resulting from the combination of the two companies.

After the merger, however, the Company’s operations did not meet
those predictions. In an attempt to show that the Company was
meeting the predicted earnings and to meet the earnings numbers
expected by Wall Street analysts and the public, HUMPHREYS and
others participated in an unlawful scheme to falsify Safety-
Kleen’s general ledger and its financial statements. In
furtherance of the scheme, they artificially inflated the
earnings disclosed by Safety-Kleen in its Form 10-K annual
reports, Form 10-Q quarterly reports, quarterly results press
releases, and quarterly results conference calls.

HUMPHREYS systematically made and directed other
Safety-Kleen employees to make a series of false accounting
entries, commonly known as “top side” adjustments, to
artificially inflate earnings for the quarter. These adjustments
made Safety-Kleen’s financial statements false and misleading in
a number of material respects. Many of the individual “top side”
adjustments were not supported by the facts, were without proper
documentation, and/or were improper under Generally Accepted
Accounting Principles (“GAAP”). The cumulative effect of the
adjustments vastly increased the Company’s reported earnings and,
in the absence of any disclosure stating such adjustments had
been made, made Safety-Kleen’s business operations appear more
profitable than they actually were.

Approximately eight to ten business days following the
close of each quarter, senior management held operations
conference calls with representatives of various field offices to
discuss the quarterly results and compare them with budgeted
and/or prior year results. Thereafter, HUMPHREYS met with one or
more co-conspirators, informed them of a higher “target” earnings
number which HUMPHREYS wanted the company to publicly report, and
discussed “corporate adjustments” they would make to inflate the
reported earnings to reflect the target earnings.

his co-conspirators then made, or directed others to make
“adjustments” to the Company’s general ledger to increase
purported revenues and decrease expenses. Such “adjustments”
included, among others, (1) improper and double-booking of
revenue; (2) improper and arbitrary reduction of reserves; (3)
improper capitalization of costs which had previously been
expensed, including costs for salaries, marketing and
transportation, and the costs of gas presently in the fuel tanks
of the Company’s trucks or tires presently on those trucks. As
HUMPHREYS and his co-conspirators well knew, many of those
“adjustments” were not supported by the facts, were without
proper documentation, and/or were improper under GAAP.

According to the Indictment, as a result of all of the
“top side” adjustments which HUMPHREYS and his co-conspirators
made or directed, the Company’s quarterly earnings were
materially increased as follows:

(Amounts approximate and in millions)

FY 1999
$91 $37 $128 40%
FY 1999
$77 $31 $108 40%
FY 1999
$48 $76 $123 158%
FY 1999
$57 $53 $110 93%
FY 2000
$47 $70 $117 149%
TOTAL $320 $267 $586 83%

In imposing the sentence, Judge SWAIN stated: “This
sentence needs to send a message by the imposition of a
significant term of incarceration that concealing a company’s
financial position is always wrong.”
Mr. GARCIA praised the outstanding investigative work
of the Federal Bureau of Investigation, and thanked the
Securities and Exchange Commission for its valuable assistance in
this case.

Assistant United States Attorneys STEVEN D. FELDMAN and
ANTHONY S. BARKOW are in charge of the prosecution.
07-275 ###

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