Manufacturing & Technology and Transportation, Distribution & Logistics

BEHIND THE NEWS: Neither SEC, Dick in rush to bring fraud suit to trial

July 25, 2005

The Securities a n d E x c h a n g e Commission didn't file its civil-fraud suit against former Conseco Inc. Chief Financial Officer Rollin Dick until 2004, four years after he resigned under pressure.

Under a timetable approved by federal Magistrate Judge V. Sue Shields July 14, Dick won't stand trial until May 2007 at the earliest. By then, he will have turned 75, and the transactions challenged by the SEC will be more than seven years old.

Such is the pace at which the suit against Dick and former Chief Accounting Officer Jim Adams is proceeding in U.S. District Court in Indianapolis.

T h e c r u x o f t h e a l l eg a t i o n s : Between March 1999 and February 2000, Dick and Adams masterminded a scheme to mask burgeoning financial problems by overstating profits $367 million. In court papers, attorneys for both men "deny all allegations ... of wrongdoing."

Judge Shields initially balked at the timetable for trial submitted by attorneys for the SEC, Dick and Adams.

"The proposed trial date is in excess of three years from the date of filing. That is unacceptable," she wrote in the court docket July 1.

But two weeks later, attorneys for the parties persuaded her they needed the time to complete the spadework for the trial, which is expected to last three to four weeks.

"Almost any time you are dealing with a financial fraud over an extensive period of time, somewhat more extensive discovery is necessary," SEC attorney Steven Levine said of the timetable.

To be sure, there have been distractions along the way, including a criminal investigation of the same issues that the U.S. Attorney's Office in Indianapolis concluded late last year without seeking charges.

Settlement efforts also have slowed progress. Court files show that in April Shields suspended the timetable to file documents for 60 days to facilitate settlement discussions.

Last month, the two sides alerted Shields "that they had been unable to reach a resolution of this matter, and that additional discovery would be necessary before further settlement discussions would be fruitful," a recent court filing says.

From the outside, it's difficult to guess the sticking points in settlement discussions, said Jeff Bailey, a former branch chief of the SEC's Enforcement Division who's now a partner with Bose McKinney & Evans.

In a settlement, a defendant typically would consent to the SEC's entering an order stating he committed a violation, such as failing to adequately maintain books and records or the more serious charge of fraud.

As part of a settlement, defendants typically don't admit or deny charges. Even so, some will balk at a deal if the order asserts fraud and they adamantly disagree they intentionally did anything wrong, Bailey said.

Another potential sticking point, he said, is the size of the fine.

In Dick's case, it's unclear how much wealth he has left. In March, he reached a settlement with Conseco over nearly $100 million the company said he owed on loans he took out in the 1990s to buy company stock that ended up worthless. Terms weren't disclosed.

Obsidian dangles offer

The Tim Durham-led investment group that controls struggling Obsidian Enterprises Inc. says in a new regulatory filing that it wants to take the publicly traded firm private by buying out other stockholders for $1.85 a share.

The group led by Durham, CEO of the locally based transportation and manufacturing firm, holds a 77.3-percent stake. The group hopes enough shareholders agree to the $1.85 price to boost its ownership to 90 percent, a threshold that clears the way to complete the buyout without the approval of remaining shareholders.

The cost for the group to buy the 22.7 percent it doesn't already own would be $1.3 million, a sum it's borrowing from a firm Durham controls.

Why go private? In the regulatory filing, the group says Obsidian has too few public shareholders to justify the increasing costs and complexities that go with running a public company.

Not many investors would mourn the disappearance of Obsidian, which has reeled from a string of losses. In the six months that ended April 30, the company lost $5.2 million on $32.6 million in revenue.

How investors will view the $1.85-ashare buyout offer is all a matter of perspective. It's a hefty premium to the recent trades, which were generally in the range of $1.30 to $1.50. But it's a pittance compared with the stock's late 2003 high of $17.50.


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