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Former Westar Execs Found Guilty of Corporate Fraud

Westar Energy's former CEO, David C. Wittig, and former executive vice president, Douglas T. Lake, were convicted of corporate fraud last Monday in a federal court in Kansas and order to forfeit millions of dollars in assets as compensation for their crimes.

Following eight days of deliberations a jury ended an 11-week trial, finding Wittig guilty on all 39 counts and Lake guilty on 30 counts of fraud, circumventing internal financial controls and money laundering. The jury acquitted Lake on nine counts.

"Assistant U.S. Attorney Richard Hathaway was on point in his summation of the evidence against Mr. Wittig and Mr. Lake," said U.S. Attorney Eric Melgren. "What weeks of trial clearly demonstrated was, quite simply, robbery with a fountain pen.

"We knew it would be no easy task to guide jurors through a series of transactions designed to conceal and misrepresent. We also knew we owed it to Westar's many shareholders, employees and customers to try."

This was the former executives' second trial. Their first ended in mistrial last year after jurors were unable to reach a consensus on more than half the charges. Wittig, however, was sentenced in March 2004 to 51 months in federal prison without parole, three years of supervised release afterward, and a $1 million fine after being found guilty of one count of conspiracy, four counts of making false bank entries and one count of money laundering in a separate case. Wittig currently is appealing that decision.

In the current case, prosecutors have claimed the two men, who were forced out of Westar in late 2002, engineered extravagant salaries and benefits for themselves at the expense of shareholders, hiding much of their actions from the company's board of directors and federal regulators. The indictments charged that while Westar Energy's stock plunged to $9 from $44 a share, Wittig and Lake reaped more than $25 million and $7 million, respectively, in salary and benefits under "false pretenses" between 1995 and 2002; sought to "systematically loot" the company's assets and money; and flouted internal controls that were in place to ensure accountability.

It further alleged that Wittig and Lake set up a subsidiary, Westar Industries Inc., for the express purpose of looting the assets of the utility and leaving the debt behind for ratepayers, and used corporate aircraft for their personal benefit. The two men also were accused of destroying or attempting to destroy company records to hinder the grand jury investigation into their activities.

Westar Energy is the largest electric utility in Kansas, serving about 654,000 customers in the state. The company also once owned part of Tulsa, OK-based Oneok, but sold its stake in the gas utility in 2003.

Melgren said the case reflects goals that President Bush set in July 2002 when he signed new laws aimed at attacking corporate corruption. "The president said he wanted to send a message to dishonest corporate leaders that they would be exposed and punished, that no boardroom was above the law," he said. "He wanted to send a message to every American that there will not be a different ethical standard for corporate America than the standard that applies to everyone else. I think this verdict sends that message."

The 12-member found Wittig guilty on the following counts: One count of conspiracy to defraud Westar; 14 counts of circumventing internal controls and falsifying books; 7 counts of wire fraud; and 17 counts of money laundering. The jury found Lake guilty of one count of conspiracy to defraud Westar; 13 counts of circumventing internal financial controls; six counts of wire fraud and 10 counts of money laundering.

Wittig and Lake face a maximum penalty of five years in federal prison on the conspiracy count, 10 years for each count of circumventing internal accounting controls, 20 years for each count of wire fraud and 10 years for each count of money laundering.

According to the indictment, the scheme included falsifying company records, circumventing internal controls, perverting corporate programs for personal profit, structuring a subsidiary with intent to loot company assets and leave debt behind in the utility for ratepayers, using corporate aircraft for personal business, misusing corporate counsel to assist in removing directors who were critical of management; depleting company assets through lavish spending, making false statements in director and officer annual reports, making false statements in reports to the Securities and Exchange Commission, and other violations.

In a separate hearing that started last week a jury order Lake to forfeit more than $2 million in stock proceeds as well as stock and dividends he acquired at Westar. It found that Wittig should forfeit his Topeka mansion, a $5.37 million signing bonus, $700,000 in furnishings, $28 million in unpaid split-dollar life insurance benefits, a $17,460 stake in a Ferrari and a number of other assets and funds. The verdict also said the men should sacrifice anything they get from Westar in a separate proceeding. Westar has essentially sued the two former executives for all compensation and benefits from their employment at the company, and both men have filed counterclaims.

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