SEC Accuses Former Conseco Execs of LyingMar 11, 2004 | AP Conseco Inc.'s top finance officials made false statements to investors and the government throughout 1999, overstating results by hundreds of millions of dollars and hiding the insurance company's skid toward bankruptcy, regulators said Thursday.
The Securities and Exchange Commission said Conseco's former chief financial officer, Rollin Dick, and former treasurer, James Adams, conducted a fraudulent accounting scheme in order to avoid reporting the decline in value of certain securities held by Conseco Finance, a subsidiary formed through the 1998 purchase of mobile home lender Green Tree Financial Corp.
Dick and Adams also ordered accountants to make improper adjustments to Conseco Finance's financial statements to investors and regulators that inflated earnings in each of the first three quarters of 1999, the SEC order alleged.
The Securities and Exchange Commission's findings were included in an order issued Wednesday demanding the company end all ongoing or future violations, part of a settlement between the agency and the Carmel-based company.
As part of the settlement, Conseco did not admit or deny the SEC's findings.
No fines or penalties were imposed against the company or former CEO Stephen Hilbert. But Dick and Adams face possible civil penalties between $110,000 and $120,000 per violation, said Dan Gregus, an SEC spokesman in Chicago. The FBI also is investigating.
Conseco CEO Bill Shea, the lone pre-bankruptcy holdover remaining on Conseco's board, would not comment Thursday on the finding.
The company released a statement saying it was "pleased to have resolved this legacy issue."
In an unrelated case, a federal judge in Chicago on Wednesday dismissed a lawsuit by Conseco seeking to recover $70 million that Dick borrowed to buy stock in the company before it went bankrupt. Those types of loans are now barred under federal law.
Conseco attorneys said they planned to seek the money in Indiana courts.
Conseco is trying to recover some $670 million in stock loans from Hilbert, Dick, Adams and eight other former directors and officers known as the "Big 11." Hilbert is in danger of losing his 23,000-square-foot mansion not far from Conseco's headquarters and millions in other assets.
Hilbert, who co-founded Conseco in 1979, resigned in spring 2000.
The company, saddled with $6.5 billion in debts incurred mainly through 1990s acquisitions, filed for Chapter 11 bankruptcy protection in 2002 and came out of bankruptcy in September with a much reduced debt load. The bankruptcy filing was the third largest in U.S. history, trailing only the filings of WorldCom Inc. and Enron Corp.
The company Thursday released earnings for the fourth-quarter ending Dec. 31 showing net income of $49.6 million, or 49 cents per share, including a net gain of about $800,000 from investments.
"We are back to being a real insurance company," Shea said. "We are generally pleased with our results."
Because of "fresh-start" accounting reflecting the company's bankruptcy emergence, Conseco was unable to make direct comparisons with previous earnings periods.