Buntrick's Participation in the Fraud

(And the others)

(from SEC Summary) - "Buntrock was the driving force behind the fraud. He set earnings targets, fostered a culture of aggressive accounting, personally dircted certain of the accounting changes to make the targeted earnings, and was the spokesperson who announced the Company's phony numbers."

(From SEC Case by Numbers) - "By fraudulently reporting double-digit earnings growth, Buntrock, Koenig, Hau, Getz, and Tobecksen rewarded themselves with bonuses equal to between 30% and 128% of their salaries. Rooney likewise made off with a bonus equal to 114% of his salary as a result of the accounting manipulations and inflated earnings of WMNA. (from 213)

297. For the periods from the first quarter of 1992 through the first quarter of 1997, Buntrock knew or recklessly disregarded facts indicating that the Company's publicly disseminated financial information contained in periodic reports on Forms 10-K and 10-Q, registration statements incorporating those periodic reports, annual letters to shareholders, and press releases of annual and quarterly earnings misstated and omitted material facts. During that same period, he exercised control over Waste Management and all of its executives in connection with the preparation and filing of periodic reports on Forms 10-K and 10-Q.

298. Throughout the relevant period, Buntrock received quarterly information on the top-level adjustments and the extent to which the quarterly top-level adjustments, and unbudgeted increases thereto, improved the Company's reported earnings. He set the earnings targets, authorized the release of public earnings projections, and on occasion directed that top-level adjustments be recorded to make the targeted earnings. By reason of the foregoing, Buntrock knew or recklessly disregarded facts indicating that the Company's increasing use of top-level adjustments and the lack of disclosure were part of a fraudulent earnings management scheme to reduce expenses, artificially inflate earnings, and achieve preset earnings targets while, at the same time, boosting the reported margins and concealing the operating realities of the Company.

299. Throughout the relevant period, Buntrock participated in decisions to abandon large landfill projects and was made aware of numerous projects that the Company classified as "dead" and having a "low probability of success." He knew that, instead of writing off the deferred permitting costs related to the identified impaired and abandoned projects, the Company continued to carry those costs on the balance sheet until future bundling/basketing or netting opportunities arose. By reason of the foregoing, Buntrock knew or recklessly disregarded facts indicating that the Company's accounting for landfill permitting costs violated GAAP and that the Company's financial statements and disclosures during the relevant periods contained material misstatements and omissions relating to the improper accounting for impaired and abandoned projects. Additionally, Buntrock knew or recklessly disregarded facts indicating that the failure to write off promptly the deferred permitting costs of impaired and abandoned projects, the subsequent netting of such costs, and the lack of disclosure were part of the Company's scheme to manage earnings, conceal the operating realities of the Company, and correct known accounting errors only if it could be done without disclosure or a significant impact on earnings.

300. Buntrock knew that, as early as 1989, AA requested that the Company conduct a net realizable value study of its landfills and amortize any excess value over the remaining lives of the landfills. He knew that the Company agreed in the Action Steps to conduct such a study and then to take any necessary write-offs. He knew that by the end of 1996, the Company still had not completed a study. Buntrock did not see to it that an appropriate study was performed because he knew or recklessly disregarded facts indicating that such a study would result in the Company's having to record expenses to write down overvalued land. By reason of the foregoing, Buntrock knew or recklessly disregarded facts indicating that the Company's accounting for unamortized land violated GAAP and that the Company's financial statements and disclosures during the relevant periods contained material misstatements and omissions as a result.

301. Buntrock knew the Company had a history of repeatedly revising its depreciation estimates to increase current and future earnings by reducing reported operating expenses. Buntrock approved the third quarter 1993 changes in the estimated useful lives and salvage value for trucks; was consulted on, and approved, the addition of a salvage value to containers; and was made aware of the addition of a salvage value to Spotter Tractors and other heavy vehicles at the end of 1996. By reason of the forgoing, Buntrock knew or recklessly disregarded facts indicating that the impact of the 1993, 1995 and 1996 changes in depreciation estimates was material to the Company's current and future period earnings. He further knew or recklessly disregarded facts indicating that, by failing to disclose the changes, the Company's disclosures regarding its depreciation policies and results of operations were materially false and misleading. Buntrock also knew or recklessly disregarded facts indicating that the inflated salvage values assigned to trucks and containers were unsupported, improper, and violated GAAP and that the Company's financial statements and disclosures contained material misstatements and omissions as a result. In addition, he knew or recklessly disregarded facts indicating that the repeated changes in depreciation estimates, the use of excessive salvage values, and lack of disclosure were part of the Company's scheme to manage earnings and conceal the operating realities of the Company.

302. Prior to the release of 1993 earnings, Buntrock agreed that the Company would implement the Action Steps agreement beginning in 1994. Buntrock knew or recklessly disregarded facts indicating that the Action Steps agreement identified non-GAAP accounting practices employed by the Company and that implementation of the "must do" items in the agreement was part of a scheme to secretly and improperly conceal those practices and write off known errors over an extended period. Buntrock knew or recklessly disregarded facts indicating that the Company's disclosures were materially false and misleading because they did not disclose the existence, impact, and nature of the Action Steps, or the subsequent failure change the improper accounting practices identified in the Action Steps.

303. Buntrock approved or ratified the netting of the IPO gain in 1992, the Modulaire gain in 1994, the ServiceMaster gain in 1995, the Rust gains in 1996, and the ServiceMaster II gain in 1997. He knew that the netting was used to secretly eliminate or reduce balance sheet misstatements, among other things. Buntrock knew of the netted items and that they included PAJEs that the Company had refused to record, as well as current period expenses and other items identified by the Company. By reason of the foregoing, Buntrock knew or recklessly disregarded facts indicating that the netting violated GAAP and that the Company's financial statements and disclosures were materially false and misleading as a result. Buntrock also knew or recklessly disregarded facts indicating that the netting and the lack of disclosure thereof was part of a scheme to manage earnings, improve the margins, and hide the operating realities of the Company. In addition, he knew or recklessly disregarded facts indicating that the netting and the lack of disclosure were part of a scheme to write off known accounting errors only if it could be done secretly without having to reduce Income from Operations.

304. Buntrock knew of the deed restrictions, zoning difficulties, and state law prohibiting expansion on the adjacent property to Live Oak. He knew that the failure to obtain a horizontal expansion would have a financial statement impact, which was quantified for him in 1994, 1995, and 1996. He also knew or recklessly disregarded facts indicating that the failure to write off the Live Oak impairment and revise amortization and accrual rates violated GAAP and that the Company's financial statements and disclosures were materially false and misleading as a result. Buntrock further knew or recklessly disregarded facts indicating that such failure and lack of disclosure was part of the Company's scheme to manage earnings and conceal the operating realities of the Company.

305. Buntrock knew that the Company's 1996 results were benefited by the undisclosed non-recurring, non-operating income and by the second quarter sweep. Buntrock knew or recklessly disregarded facts indicating that the Company's financial statements and disclosures were materially false and misleading as a result of the second quarter sweep and the inclusion of non-recurring, non-operating income in reported income from continuing operations. He also knew or recklessly disregarded facts indicating that such practices violated GAAP and were part of the Company's scheme to manage earnings and conceal the operating realities of the Company.

306. By approving or ratifying the above-described improper accounting practices that continued through the date of his being replaced as CEO, Buntrock also knowingly provided substantial assistance in the Company's filing of false financial statements included in the Company's quarterly reports on Form 10-Q for the quarters ended June 30, 1997, and September 30, 1997.

Ill-Gotten Gains from Performance-Based Bonuses and Insider Trading Profits (Losses Avoided)

337. Each defendant profited from his fraud. Among other perks, the incentive bonus program for the senior officers was tied to the Company's achieving targeted earnings for the year. The bonus targets were derived from the Company's budget for the year. Thus, by manipulating the reported results to achieve budgeted earnings, the defendants also collected substantial bonuses. For example, Buntrock and Rooney's bonuses in 1994 and 1995 were approximately equal to their million dollar salaries for those years.

338. The following bonuses were paid based on the Company's inflated earnings in 1992, 1994, and 1995:

But for their fraudulent conduct noted above, the Company would not have paid bonuses to the defendants in those years.

339. The ill-gotten bonuses had the additional effect of improperly boosting certain of the defendants' retirement benefits under the Company's supplemental executive retirement plan ("SERP"). The SERP provided monthly retirement income for senior executives at the Company. The benefits were based on the participant's average compensation, including salary and bonus, for the three consecutive years in which the participant's total compensation was highest. Thus, the significant bonuses paid in 1994 and 1995 increased the SERP benefits payable to Buntrock, Hau, and Tobecksen.

340. In addition to the ill-gotten bonuses, Buntrock, Rooney, and Koenig sold Waste Management stock while the fraud was being perpetuated. In addition to the sale of Company stock held in his own name, Buntrock directed the sale of Waste Management shares held by a private foundation he controlled, which was created to dispense Buntrock's charitable gifts. In the spring of 1996, Buntrock directed the sale of 310,000 Waste Management shares held by the foundation, which represented all of the Company stock held by the foundation. As set forth below, each sold Company stock as follows:

Buntrock's Trading

341. Buntrock, Rooney, and Koenig engaged in these transactions knowing or recklessly disregarding that Waste Management's earnings and other measures of financial performance were materially overstated and that the stock consequently was materially overpriced. By selling before the fraud came to light, they avoided huge losses. In fact, Buntrock and Rooney each sold stock as the scheme was unraveling. Over the two weeks immediately preceding the April 21, 1997 release of the Company's results for the first quarter of 1997, Rooney sold all of his remaining holdings, 459,748 shares of the Company's stock. At the time, Rooney knew or recklessly disregarded that the first quarter results were behind budget and that the Company faced significant obstacles to achieving its public earnings target for the year. Likewise, Buntrock sold 144,698 shares in early August of 1997 when he knew that his successor had undertaken a review of the Company's prior accounting practices and was beginning to question him and others about those practices.

342. Buntrock also gave away Waste Management stock to non-profit institutions and recognized a tax benefit on the inflated value of the stock. The largest gift was 100,000 shares to his college alma mater. Buntrock made the gift to fund his $29 million commitment to the college to build a new student center in his honor, named "Buntrock Commons." The gift was made on October 1, 1997 — just 10 days before new management announced 1996 results had been inflated during Buntrock's tenure. Through the gift of inflated stock, Buntrock was unjustly enriched in the form of the increased tax benefit.

343. Finally, by perpetuating the fraud over an extended period, defendants were enriched in other ways. During the fraud, all defendants were awarded numerous Company stock options, which in some years were extended, while some additionally were granted restricted shares of Company stock. If defendants successfully boosted the Company's stock price over three consecutive years, they also were eligible for long-term performance bonuses ranging between 30% and 150% of their salaries. Rooney, Koenig, and Getz additionally received special bonuses in some years, and in 1996, they were awarded long-term employment contracts. Upon his February 18, 1997 resignation, after only seven months on the job as CEO, Rooney's five-year "golden parachute" netted him a $12.5 million severance payment. Koenig and Getz's three-year contracts guaranteed their lucrative salaries and even bonuses after they left in the midst of the accounting scandal.

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