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BEHIND THE NEWS: Dick settles big SEC case for a small sum: $110,000

July 17, 2006

It was frontpage news two years ago when the U.S. Securities and Exchange Commission sued Rollin Dick, charging he and another former Conseco Inc. executive masterminded an accounting fraud that allowed the company to overstate 1999 profits by $367 million.

The case has reached an anticlimactic conclusion: Under a settlement approved July 3 in federal court in Indianapolis, Dick agreed to pay a $110,000 fine. Without admitting or denying wrongdoing, the 74-yearold agreed not to commit future violations or to serve as an officer or director of a public company for five years.

Jon Eastman, a former Conseco senior vice president who lost millions of dollars on Conseco stock when the company plunged into bankruptcy in 2002, is underwhelmed.

"It's outrageously low, considering the amount of money and financial security that loyal employees and stockholders in Conseco lost," Eastman said.

It's also a pittance compared to the hefty paycheck Dick was pulling down before he and CEO Stephen Hilbert resigned under pressure in April 2000. Over his last three years with the company, Dick collected salary and bonuses topping $12 million.

Yet this may be a case of the SEC recognizing it couldn't ding Dick for money he doesn't have.

Indeed, the longtime executive's financial fortunes have plunged in recent years. Not only was he a big holder of Conseco shares-which were deemed worthless when the company emerged from bankruptcy court in 2003-he bought many of those shares with borrowed money.

A year ago, Dick struck a deal with Conseco to resolve litigation charging he owed the company $100 million-$70 million in principal on the loans he used to buy stock, plus $30 million in interest. Terms were not disclosed.

Before settling with the company, he'd raised a range of defenses in an effort to extricate himself from that debt, which far exceeded his net worth, according to court papers.

Attorneys for Dick declined to comment. An SEC official acknowledged the size of the fine is no record-setter.

"It is certainly not one of the biggest fines I have collected in this kind of situation," said Tim Warren, associate director of the SEC's Midwest regional office in Chicago. "It is a combination of looking at the conduct and taking into account he did lose quite a bit of money on his investment in Conseco stock overall."

The federal court has approved a similar settlement with former Conseco Chief Accounting Officer Jim Adams, 46, who agreed to pay $90,000. Like Dick, he did not admit wrongdoing and will be ineligible to serve as an officer or director of a public company for five years.

Adams last year filed for personal bankruptcy, saying he has no means to pay the $27 million in principal and interest Conseco says he owes on loans used to buy company shares. Court records show he's coming up with the money to settle with the SEC through a mortgage on his home.

The SEC's lawsuit had charged that, during 1999-a period the company was under extraordinary pressure to reverse its plunging stock price-Dick and Adams inflated profits by manipulating the value of Byzantine financial instruments known as "interest-only securities."

Conseco in 1998 had paid $6 billion to buy Minnesota-based Green Tree Financial Corp., the nation's biggest mobile home lender, and was trying to silence naysayers who thought it had paid way too much for a business where borrowers are at great risk of default. The value of the securities was tied to the performance of Green Tree loans.

In the spring of 2000, the company announced an earnings restatement that wiped out nearly 40 percent of 1999 profits. Company officials at the time chalked up the restatement to errors, not to fraud in valuing the securities.

"Yes, Conseco made a mistake," company attorneys wrote in court papers responding to lawsuits filed that year by investors. "The ... restatement acknowledges that. But the mistake occurred in projecting future cash flow from hundreds of thousands of loans, issued for billions of dollars and extending many years into the future."

Marsh retreats

Marsh Supermarkets Inc. CEO Don Marsh stood before shareholders in August 2003 and announced a bold new strategy.

"We need new territory," Marsh said. "We will not be cannibalizing ourselves here in Indianapolis."

So much for the new strategy. The company opened a Fort Wayne store in January 2004, then closed it in February of this year. It opened one in suburban Chicago in August 2005. Now, it's closing that, too-and paying $5 million to get out of its lease.

The landlord, Indianapolis-based Kite Realty Group Trust, already has struck a deal to sell the store to Addison, Ill.-based Caputo's Fresh Markets.


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