Tim Harcharik says he's perplexed he's in this predicament. The Securities and Exchange Commission is equally perplexed
why he won't fess up to fraud.
Four years after the SEC accused Harcharik of committing securities fraud at Brightpoint Inc., he finally has his day in court. A civil jury trial is scheduled to start May 21 in Manhattan. It could last as long as three weeks.
The 53-year-old, who served as Brightpoint's director of risk management from 1997 to 2002, has seen his life turn upside down since the SEC cast him as an architect of an $11.9 million accounting fraud. The agency says the company in early 1999 bought a sham insurance policy from New York-based American International Group as part of a scheme to spread out losses that should have been reported in 1998.
It's been a financially devastating odyssey for Harcharik, so much so that since December he's been serving as his own attorney. He said he's applied for hundreds of risk-management jobs in recent years, but the allegations of wrongdoing apparently scare off potential employers. He's been making about $30,000 a year doing risk-management consulting work for a friend.
"The main reason I don't want to settle is I didn't do anything wrong," Harcharik said.
Indeed, Harcharik considers himself an unlikely target. He wasn't an employee of Brightpoint, only an independent contractor. In addition to having no accounting expertise, Harcharik said, he had no authority over the company's accounting or even knowledge of how it recorded transactions.
But the SEC's court filings suggest it thinks it has a slam-dunk case. Scheduled to testify against Harcharik will be both John Delaney, Brightpoint's former chief accounting officer, and Lou Lucullo, an AIG senior vice president who sold the policy to Brightpoint.
"Two compelling witnesses ... will testify at trial that Harcharik knew the true nature and purpose of the AIG policy all along, and their testimony will be supported by contemporaneous e-mails, documents and handwritten notes," the SEC wrote in a brief. "Harcharik, however, seems oblivious to the substantial evidence implicating him in the fraud."
Harcharik scoffs at the characterization, suggesting that to protect themselves the pair told investigators what they wanted to hear.
"The commission should more correctly state that two 'compelled' witnesses will testify, as Lucullo is providing testimony under a cooperation agreement ... in return for no ... fine, and Delaney is providing testimony under a criminal plea agreement in return for a reduced sentence," Harcharik said in a brief.
Harcharik notes that when Delaney initially offered to cooperate with criminal investigators three years ago, his attorney wrote a letter implicating Brightpoint's senior management. That document mentions Harcharik only briefly.
It was only later, when the U.S. Attorney's Office in Indianapolis zeroed in on Harcharik, that Delaney rolled out detailed allegations against him.
Criminal authorities in October 2005 charged Delaney with securities fraud and Harcharik with obstruction of justice, saying he provided false testimony to the SEC. Delaney pleaded guilty and was sentenced to eight months of home detention.
An Indianapolis federal judge last year dismissed the Harcharik indictment. He ruled it was brought in the wrong jurisdiction, since Harcharik testified in New York. Indianapolis prosecutors could have appealed the ruling, or prosecutors in New York could have picked up the case. But neither happened; officials won't say why.
Especially irksome to Harcharik is the testimony from Lucullo, which he characterizes as a collection of "loose impressions" and "vague recollections."
"Lucullo's testimony was a smorgasbord of contradictory answers from which one could cherry-pick ... to present any case of one's choosing," he said in a court filing.
While Harcharik gained some understanding of legal issues during his 30-year career in the insurance industry, he doesn't claim he's comfortable representing himself. Even before trial, he's had to stumble through many legal complexities, such as drafting proposed jury instructions.
"I didn't have a clue," he said.
Helping him prepare his defense is his sister Kristen Jenks, a business consultant in Rochester, N.Y., who formerly served as chief financial officer for a division of Constellation Brands, the big wine-and-spirits company.
"Unfortunately, he still is about 50 percent clueless on the whole transaction, and what he is charged with," she said.
Harcharik is confident of one thing--the AIG policy that has caused such an uproar is legitimate insurance. He said the bulk of the policy was standard employee crime coverage. He maintains that premiums were $7.5 million, half the $15 million others claim, and he says there was genuine transfer of risk.
It's a position the SEC calls incredible given that years ago Brightpoint restated financials to reflect it wasn't insurance.
The good news for Harcharik is that, even if he loses, the stakes are relatively modest. Because this is a civil trial, the court could impose a financial penalty but not prison. And because Harcharik is barely scraping by, he couldn't pay much, anyway.
But Harcharik badly wants to win to clear his name and get on with his life.
Harcharik finally had a professional breakthrough in May 2005, or so it appeared. He landed a job as director of risk management for Otis Spunkmeyer, the California-based cookie maker. But when he was indicted five months later, the company let him go, fearing his association with the firm could hurt its planned initial public offering.