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Jury Convicts Former Westar Energy Executives

Posted on: Tuesday, 13 September 2005, 00:00 CDT

Sep. 13--KANSAS CITY, Kan. -- A jury on Monday convicted former Westar Energy Inc. Chairman and Chief Executive Officer David Wittig of all 39 counts in his trial on charges of looting the utility.

The federal jury convicted his co-defendant, former Westar Executive Vice President and Chief Strategic Officer Douglas Lake, of all but nine of the 39 counts.

Wittig and Lake listened stoically as U.S. District Judge Julie Robinson read the verdicts before a packed gallery shortly after noon Monday. The men and their lawyers, looking grim-faced, quickly exited the courtroom after the verdicts were announced and declined to comment. Both defendants are expected to appeal.

The jury deliberated 7 1/2 days following a trial that lasted more than two months.

The jury will return this morning to the federal courthouse in Kansas City, Kan., to hear evidence on whether Wittig and Lake should forfeit to the government their allegedly ill-gotten wealth. The government wants Wittig to cough up $27.9 million in salary and bonuses and Lake to disgorge $9.4 million in salary and bonuses.

The jury's verdict represents one of the highest-profile convictions of a public company executive in Kansas City area history, marking the latest turn in a story of a local boy who made it big as a Wall Street investment banker before returning to run his home state's biggest electric utility.

Karla Olsen, a spokeswoman for Westar, said the company had paid $8.3 million in legal fees to Wittig and Lake under their employment contracts.

"If the verdict should be appealed and upheld," Olsen said, "we expect reimbursement of those fees."

The case marked the second time Wittig and Lake, who were ousted from Westar in late 2002, stood trial on charges of plundering the Topeka-based company. Their earlier trial ended last December after the jury deadlocked on more than half the charges and the judge declared a mistrial.

The jury on Monday found Wittig and Lake guilty of conspiracy to loot Westar, circumventing internal accounting controls, committing wire fraud and money laundering. The government charged that the two orchestrated extravagant pay packages for themselves and failed to disclose the details to Westar's board of directors and shareholders.

The two face up to five years in prison on the conspiracy count, 10 years on the circumvention counts, 20 years on the wire fraud counts and 10 years on the money laundering counts.

During the trial, Lake took the witness stand in his own defense. Wittig did not. Both men argued that their actions were legal, approved by Westar's board and disclosed in public filings.

Lead prosecutor Rich Hathaway briskly left the courtroom after Robinson dismissed the jury and did not answer questions.

The convictions were a personal vindication for Hathaway, a career federal prosecutor who has pursued Wittig through three hotly contested trials. Although Hathaway did not comment afterward, his boss, U.S. Attorney Eric Melgren, commended him and the FBI for their work on the case.

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

The trial featured often-complicated testimony about split-merger deals, restricted stock units and other details about Wittig's and Lake's compensation. Among other things, Wittig and Lake were accused of manipulating a proposed merger for their own personal benefit, using the company's legal counsel to remove Westar directors critical of their policies and investigating employees accused of leaking information to the news media and regulators.

The government also accused Wittig and Lake of using corporate aircraft for pleasure trips, misappropriating funds from a company relocation program and, in Wittig's case, spending $6 million of corporate money to renovate his Topeka home, the Alf Landon mansion.

Wittig, 50, a Kansas City area native, graduated from the University of Kansas and reached the pinnacle of Wall Street success while only in his 30s, appearing on the cover of Fortune magazine in 1991. He was co-head of mergers and acquisitions at Salomon Brothers when he was tapped in 1995 by former Westar head John Hayes Jr. to head the utility's diversification efforts after deregulation opened up opportunities for public utilities beyond the energy business.

Regarded by many co-workers as aloof and distant, Wittig was also considered to be something of a wunderkind and a wizard with numbers.

Lake, 55, was a principal at Bear Stearns before Wittig, by then chairman, president and chief executive of Westar, brought him on board in 1998 to succeed him as chief strategic officer. The impeccably tailored, silver-haired Lake spent much of his time outside of Topeka doing deals and overseeing Westar's far-flung businesses.

Wittig's fall from grace was nearly as rapid as his upward trajectory in the world of investment banking.

He was hailed as a hero after Westar realized a huge after-tax gain of $519 million in 1997 when Tyco International outbid Westar for ADT, the nation's largest home security company. Westar at the time owned a 22 percent stake in ADT.

But after Westar's stock peaked at $44 in 1998, it plunged to a fraction of that price as the company's investments faltered and questions arose about Wittig's $8 million paycheck and use of corporate aircraft.

Under Wittig, Westar had pursued an aggressive acquisition policy, including unsuccessful attempts to acquire Kansas City Power & Light Co. and even the Kansas City Royals. But in the course of buying and consolidating small home security firms, Westar had also piled up more than $3 billion in debt.

In 2000, Westar decided to separate its regulated utility business and nonregulated businesses through a merger of the utility with Public Service of New Mexico and the spin-off of its nonregulated businesses to Westar shareholders. Although the company believed that the deal would maximize value for shareholders, the transaction was nixed by the Kansas Corporation Commission out of concern the utility would be saddled with all of the corporate debt.

Wittig's downfall was all but assured after Westar was subpoenaed in September 2002 for records about Westar's corporate aircraft. Shortly afterward, Westar authorized the New York law firm of Debevoise & Plimpton to look into the issues raised by the subpoenas and other management matters.

In the meantime, in December 2002, a Topeka grand jury indicted Wittig and Clinton Odell Weidner II, president of Topeka's Capital City Bank, on charges of bank fraud stemming from Weidner's decision to increase Wittig's personal line of credit at the bank by $1.5 million. Prosecutors charged that Weidner arranged the increase so that Wittig could lend the money to Weidner for a real estate investment in Scottsdale, Ariz.

Wittig was forced out of the company shortly afterward. Both Wittig and Weidner were convicted of the bank fraud charges in mid-2003 after a jury trial in Kansas City, Kan. Weidner was sentenced to 78 months in prison and Wittig to 51 months. Wittig's appeal is pending.

In May 2003, Debevoise & Plimpton issued its report, which cost Westar $9 million. The nearly 400-page document was unsparing in its criticism of Wittig and Lake, finding that they had enriched themselves at shareholders' expense and put their own financial well-being above the company's best interests. The report served as a template for the indictment of the two men, which a Topeka grand jury returned in December 2003.

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Copyright (c) 2005, The Kansas City Star, Mo.

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WR, KLT,

Source: The Kansas City Star (Kansas City, Missouri)

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