Westar Energy Executives Are Found Guilty of Looting Their Company

Date September 12, 2005

David Wittig, the former chief executive officer of Westar Energy, Inc., was convicted, along with a company vice president, Douglas Lake, of stealing millions of dollars from the company for personal gain. For their crimes, in which they paid themselves millions of dollars in benefits and used company-owned property for personal matters, Wittig and Lake were heavily fined and sent to prison.

Locale Topeka, Kansas

Key Figures

• David Wittig (b. 1955), chief executive officer of Westar Energy, Inc.
• Douglas Lake (fl. early twenty-first century), corporate vice president of strategy at Westar
• Clinton Weidner (fl. early twenty-first century), president of Capital City Bank

Summary of Event

David Wittig was born in the middle-class town of Prairie Village, a suburb of Kansas City, Kansas. At a young age, he excelled in school, especially in the area of advanced mathematics. He eventually won a scholarship to the University of Kansas and earned a bachelor of science degree in business administration and economics in 1977. Wittig then moved to New York City, where he began working as a stockbroker on Wall Street.

Wittig, who began working for the major Kansas-based utility company Westar Energy, Inc., in 1995, was rewarded for his aggressive business tactics with a promotion to chief executive officer (CEO) in 1998 and then chairman in 1999. For his next big acquisition, which ultimately led to his downfall, Wittig purchased 85 percent of the nation’s second largest security company, Protection One, Inc., for $1 billion. He then made plans to sell Westar’s electric assets to Public Service of New Mexico, a deal that would bring Westar an estimated $1 billion. This plan failed, along with another plan to purchase Kansas City Power & Light in 1999. However, the greatest problem for Westar became Protection One.

The U.S. Securities and Exchange Commission (SEC) began to investigate Westar’s accounting practices. Additionally, Protection One customers began to complain about their services, a direct consequence of Wittig hiring managers who did not understand the businesses they were running. While Westar was losing millions of dollars, Wittig and other company executives were amassing millions of dollars in bonuses and perks. Although these bonuses were brought to light during the second federal criminal case against Wittig, the first case against him, involved an illegal deal with a prominent Topeka, Kansas, banker in 2002.

Wittig’s career on Wall Street began with the Kansas-based firm H. O. Peet & Company. Then, in 1978, he took a job with Kidder Peabody & Co. He eventually was noticed by Martin Siegel, Kidder’s number-one investment banker. Siegel took Wittig under his wing and began to show him the ways of Wall Street, giving him advice on acquisitions and mergers. Siegel later left Kidder to join Drexel Burnham Lambert, Inc., and was indicted in 1987 for his involvement in the federal case against Wall Street tycoon Ivan Boesky.

Wittig stayed on at Kidder and made a name for himself as an investor. He was featured on the cover of Fortune magazine in November, 1986. The article was about young Wall Street successes who were considered to be the next elite social class in the United States. Wittig began to master the art of medium-size deals in the deregulated utility business of the 1980’s. He became close friends with many corporate executives in the Midwest, who helped him on his way to business stardom.

In 1989, Wittig joined Salomon Brothers, Inc., where he shared duties as chief of mergers and acquisitions from 1991 to 1995. In 1995, he became the executive vice president for corporate strategy for Western Resources, Inc. (later named Westar). He quickly became a major player in purchasing businesses that would be free from the regulations of the utility industry. During 1996 alone, he made a hostile takeover bid for Kansas City Power & Light and bought Westinghouse Security Systems for $368 million. Additionally, Wittig attempted a hostile $2.6 billion takeover of ADT, the nation’s largest residential-security company. Although Tyco International would purchase ADT, Westar netted $864 million from the sale of the ADT shares that Wittig managed to acquire before the Tyco deal.

The first federal investigation against Wittig occurred in the fall of 2002. The case centered around an illegal business deal between Wittig and the former president of Topeka’s Capital City Bank, Clinton Weidner. Weidner needed a $1.5 million loan to invest in a potentially lucrative real estate project in Scottsdale, Arizona. Wittig agreed to loan Weidner the money in return for increasing Wittig’s personal credit line by $1.5 million and making another $20 million in loans available to other Westar executives.

Wittig and Weidner were tried in 2003 and found guilty on July 14, 2004, of four counts of making false bank entries and one count of money laundering. Weidner was sentenced to six years and six months in federal prison. Wittig was given a lesser sentence of four years and three months and fined $1 million.

During this same time frame, Wittig and one of his vice presidents Douglas Lake, resigned from Westar amid accusations of theft of company assets and funds. Federal investigators alleged that the two former executives had undeservedly paid themselves millions of dollars in benefits and used company-owned property for personal matters. In fact, after becoming CEO of Westar, Wittig leased two luxury jets along with a full-time aviation staff. It was discovered that Wittig had inappropriately used these aircraft to take his family on numerous shopping trips to major U.S. cities and even to Europe on occasion. Westar corporate jets also were used to fly his family and friends to popular summer vacation spots, including Wittig’s luxurious rental home in Southampton, New York. Furthermore, Wittig purchased and renovated the mansion of former Kansas governor Alf Landon. The renovations alone for this project cost an estimated $2 million. Additionally, Wittig had his executive office suite redesigned for $6.6 million, a bill paid for, ultimately, by investors.

In late 2004, Wittig and Lake were indicted on thirty-nine counts for looting Westar. The counts included those for conspiracy, forfeiture, circumvention of internal controls, wire fraud, and money laundering. Wittig and Lake’s first trial lasted more than two months, but jurors deadlocked on many of the charges, forcing the judge to declare a mistrial in December. In the summer of 2005, a retrial led to guilty verdicts. On September 12, Wittig was convicted of thirty-nine counts and Lake was convicted of thirty. A fortieth count ordered them to forfeit the millions of dollars in stocks and cash they looted from the company.

On April 4, 2006, Wittig was sentenced to eighteen years in prison and ordered to pay a $5 million fine in addition to $14.5 million in restitution. He could have received a maximum sentence of 455 years in prison. Lake was given a fifteen-year sentence and ordered to pay $2.7 million in restitution and was fined $5 million. On January 5, 2007, an appeals court overturned their convictions, citing the government’s lack of evidence on the charge that Wittig and Lake failed to comply with federal regulations in using corporate property. The court also ruled that they could not be retried on the most serious charges because of legal protections against double jeopardy. However, the court ordered a retrial on the conspiracy and circumvention charges and on the forfeiture order.

Impact

Wittig’s crimes had a dramatic impact on the public perception of the company, investors and local citizens alike. Wittig’s questionable business deals, coupled with his insatiable greed, put more than an entire company at grave financial risk; it also placed the people of Kansas at risk. Nearly two thousand local citizens worked for Westar, making the company one of the largest employers in Kansas.

Many Westar employees, along with thousands of customers, reported feelings of anger, betrayal, and sadness, the same emotions felt by workers and consumers who were robbed and deceived by corporate executives of other notable companies, such as Enron and Worldcom. However, Wittig and Lake were somewhat different from Kenneth Lay of Enron and Bernard Ebbers of WorldCom. Wittig and Lake were concerned mainly with their own personal gain and not the economic growth of their company.

As a result of the Wittig scandal, Westar implemented debt-reduction and restructuring plans. Furthermore, the company sold non-core-related assets, including Protection One and power plants in China and India, and remains an active utility provider in the Midwest.

Bibliography

Brickey, Kathleen. Corporate and White Collar Crime: Cases and Materials. 4th ed. New York: Aspen, 2006. This work offers insight into white-collar-criminal cases, including some that are similar in context to Wittig.

Coenen, Tracy. Essentials of Corporate Fraud. Hoboken, N.J.: John Wiley & Sons, 2008. An introductory guide to the white-collar crime of corporate fraud, written by a forensic, or investigative, accountant.

Rosoff, Stephen, Henry Pontell, and Robert Tillman. Profit Without Honor: White Collar Crime and the Looting of America. 4th ed. Upper Saddle River, N.J.: Prentice Hall, 2003. This text provides an excellent overview of white-collar crime in the United States, especially the numerous noteworthy cases of the early twenty-first century.

Steiner, George, and John Steiner. Business, Government, and Society: A Managerial Perspective. Chicago: McGraw-Hill, 2005. This book offers valuable insight into the many issues facing today’s managers. Also discusses the Wittig scandal.