Executives of Southern Company are destroying thousands of corporate documents in an apparent effort to rid the firm of evidence regarding its long-running accounting-fraud scheme, according to a report at DonaldWatkins.com. The Biden Department of Justice (DOJ) must respond by raiding Southern Company headquarters, writes Watkins, a longtime Alabama attorney and entrepreneur. This is the final installment in a three-part series. Under the headline "The FBI Must Raid Southern Company Headquarters; Execs Reportedly Destroying Documents," Watkins writes:
Our confidential sources at Southern Company headquarters in Atlanta report that executives are discreetly destroying thousands of corporate records at multiple company locations that: (a) were withheld from Deloitte & Touche and (b) are relevant to a forensic audit and subsequent criminal investigation into financial frauds and other crimes at the Southern Company.
It is unclear as to who is directing the destruction of this documentary evidence in this case. A federal grand jury needs to be convened to ascertain what is happening at the Southern Company in this regard, and why.
Like President Bush’s Corporate Fraud Task Force in the HealthSouth case, the Biden White House must show leadership and instruct Attorney General Merrick Garland to: (a) conduct an immediate raid of Southern Company’s and Georgia Power Company's separate headquarters in Atlanta, together with Mississippi Power Company's headquarters in Gulfport, Mississippi, (b) retrieve the relevant financial documents and computer hard drives at all locations, (c) preserve this crucial physical evidence, and (d) serve grand-jury subpoenas upon culpable executives at each location, as was done in the HealthSouth accounting-fraud case.
Time is of the essence, unless the case already has been “fixed.”
Watkins served as a defense attorney in the HealthSouth case and had an up-close view of the government's efforts to preserve documents. Here is how Watkins describes it:
On March 19, 2003, federal agents swooped into HealthSouth Corp.'s Birmingham, Alabama, headquarters in connection with an ongoing probe of accounting fraud that was committed by 15 senior-management executives over a six-year period.
FBI agents served search warrants at HealthSouth’s corporate offices and left with six million pages of financial documents, as well as computer hard drives. The agents also served the company and certain unnamed employees with grand-jury subpoenas relating to investigations by the Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC).
The Corporate Fraud Task Force created by President George W. Bush on July 9, 2002, oversaw the raid, criminal investigation, and subsequent prosecutions against participants in a $2.7-billion accounting-fraud scheme at HealthSouth. The Task Force, which was created by Executive Order 13271, was designed to combat corporate fraud, and restore investor confidence in the marketplace.
Between July 2002 and January 9, 2009, the Task Force obtained 1,300 corporate fraud convictions, including more than 200 chief executive officers and presidents, more than 120 corporate vice presidents, and more than 50 chief financial officers.
The HealthSouth probe led to charges against 16 corporate executives, with 14 of them pleading guilty. Writes Watkins:
Following the FBI raid, HealthSouth announced that it was cooperating with the investigation. HealthSouth sought and received a non-prosecution agreement from the DOJ for itself and its board of directors.
Shares of HealthSouth plunged after the investigation became public, and the company was hit with more than two dozen shareholder lawsuits.
On November 4, 2003, the DOJ announced the indictment of HealthSouth CEO Richard Scrushy on 85 felony accounts in connection with the accounting-fraud scheme. The indictment alleged that Scrushy directed his senior officers to meet or beat Wall Street predictions by cooking the books. Scrushy denied the charges and maintained his innocence throughout the criminal proceedings.
Richard Scrushy was the highest-ranking corporate officer of the 16 former executives at HealthSouth who were charged in the accounting fraud scheme. Fourteen of these executives pleaded guilty, including all five of the men who served as the company’s chief financial officers, and became cooperating witnesses for the government.
In June of 2005, a jury acquitted Richard Scrushy of all criminal charges.
Even though Scrushy was acquitted, all five CFOs received light sentences for testifying against Scrushy.
The Southern Company fraud essentially is a case of history repeating itself, Watkins writes:
Fast forward to April 3, 2023.
As described in Part 1, “How the Southern Company Cooked Its Books in a Massive $27 Billion Accounting Fraud Scheme,” and in Part 2, “The Southern Company Fraud Scheme: Is This the Resurrection of Bernie Madoff?” a deep-dive into the Southern Company’s 10-K for 2022 shows that the monopolistic utility giant with nine million customers in six states and 99,521 shareholders (as of December 31, 2022) is following in the footsteps of HealthSouth and reviled New York financier/fraudster, Bernie Madoff.
For years, the Southern Company, which is cash strapped and destitute, has adopted, adapted, and implemented the worst financial practices and crimes perpetrated by guilty HealthSouth executives and Bernie Madoff.
As was the case in HealthSouth, top Southern Company executives “cooked the books” to meet or beat Wall Street expectations. Because of the fraud, the company was able to manipulate and maintain high stock prices for market cap purposes. With an artificially inflated market cap, the Southern Company was able to induce lenders to provide the company with $55.2 billion in long-term debt and $7.6 billion in credit lines.
The Southern Company’s consolidated $59 billion in annual cash flows from the sales of electricity, natural gas, and other forms of energy fell way short of covering the company’s operating expenses in 2022.
The company faked profitability for years by consistently and regularly paying dividends from borrowed money and capital injections provided by new investors, à la Bernie Madoff style.
Southern Company, it turns out, has a history of hiding documents and certifying phony financial statements, Watkins reports:
The Southern Company . . . withheld more than 2,500 corporate documents that evidences the accounting fraud and other financial crimes from Deloitte & Touche, its outside auditing firm since 2002.
The drag on the Southern Company’s deteriorating financial condition comes from (a) $7.5 billion in losses and write-downs associated with its abandoned coal-gasification construction project in Kemper, Mississippi, and (b) $21 billion in unexpected cost overruns from Georgia Power’s construction of Units 3 and 4 at the Vogtle Nuclear Power Plant. These write-downs and cost overruns drove Southern Company senior-management executives to “cook the books.”
The Southern Company attempted to cover its tracks by issuing and certifying phony financial statements, accompanied by rosy investment documents, all in violation of the Sarbanes-Oxley Act of 2002. The individuals who signed the Sarbanes-Oxley certifications on the Southern Company’s phony 10-K for 2022 are: (a) Thomas A. Fanning (CEO) and Daniel S. Tucker (CFO), for the Southern Company; (b) J. Jeffrey Peoples (CEO) and Philip C. Raymond (CFO), for Alabama Power Company; (c) Christopher C. Womack (CEO) and Aaron P. Abramovitz (CFO), for Georgia Power Company; (d) Anthony L. Wilson (CEO) and Moses H. Feagin (CFO), for Mississippi Power Company; (e) Christopher Cummiskey (CEO) and Gary Kerr (CFO), for Southern Power Company; and (f) Kimberly S. Greene (CEO) and David P. Poroch (CFO), for Southern Gas Company.
These individuals share the same criminal exposure as the 15 executives who were criminally charged and pleaded guilty in the HealthSouth case. Tom Fanning is expected to use the successful Scrushy criminal-defense playbook to escape charges and a prosecution.
The phony financial reports fooled shareholders, new investors, institutional lenders, major private-equity firms like Vanguard Group, Inc. and BlackRock Inc., Deloitte & Touche, the SEC, state and federal regulators, and mainstream media organizations that cover publicly traded companies.
The accounting fraud could have been detected by Deloitte & Touche, but this did not happen. Deloitte was paid at least $17 million to opine that the phony 10-K for 2022 presented a fair and accurate picture of the company's financial condition when, in fact, the 10-K was rife with fraud.
On a national level, the United States is coming off three consecutive presidential administrations -- Obama, Trump, and Biden -- that have been soft on corporate wrongdoing. The Southern Company fraud could be seen as a test case to determine if the Biden White House can turn that inglorious streak around. Given that the country already is experiencing a new string of cases that involve dubious management maneuvering, Team Biden must show that it can get tough and restore investor and public confidence in a financial system that shows signs of being shaky, Watkins writes:
On November 17, 2009, President Barack Obama terminated President Bush’s Corporate Fraud Task Force with Executive Order 13519. President Donald Trump never created one.
President Biden does not have one, either. Biden did establish a limited purpose COVID-19 fraud task force with a lackluster track record.
The implosion of Theranos, Inc., FTX Trading Ltd., Silicon Valley Bank, and a host of other Wall Street companies since 2018, as well as the unrelenting serial crime spree perpetrated by Wells Fargo Bank since 2009, clearly shows that Obama’s termination of President Bush’s Corporate Fraud Task Force was a bad idea.
As a result, corporate fraud crimes by Wall Street publicly traded companies are out of control. Nobody is effectively policing them. When they get caught, these companies simply pay a fine and penalties and resume their crime sprees.
Today, corporate reformers and crime fighters fear that Joe Biden is soft on crime, unless it involves a DOJ/FBI raid on Donald Trump’s Mar-a-Largo home or the prosecution of MAGA Republicans who participated in the January 6th Insurrection.
Corporate prosecutions under President Joe Biden remain in the abyss after reaching record lows under Trump, according to government data analyzed in a Public Citizen report released on April 25, 2022. The Biden administration has shown no interest in amassing a strong prosecutorial record against Wall Street crooks.
What is worse, Attorney General Garland appears to be missing-in-action on all crime-fighting fronts.
In the absence of a Corporate Fraud Task Force like the one created by George W. Bush and considering Joe Biden’s apparent “softness” on white-collar crimes committed by Wall Street crooks, Attorney General Garland has opened the door for notorious influence peddlers like former president Bill Clinton (D-Arkansas) to roam the halls of the DOJ in search of top officials who will permit him to assist them in resolving corporate-fraud cases without criminal prosecutions of the companies involved or their CEOs.
Clinton, who is reportedly working behind the scenes to help Southern Company CEO Tom Fanning secure a non-prosecution agreement for the Southern Company, its affiliates, and himself and Chris Womack, is an expensive influencer. Reportedly, Clinton was paid $5 million, which was laundered through a Washington, D.C., law firm, to escort Fanning, Womack (Fanning’s successor), the Southern Company, and its affiliates to safety so that Fanning can exit the company on May 24, 2023, with a retirement package that is valued up to $100 million.
The fate of the other signatory officials on the jointly filed 10-K for 2022 is up in the air. What is worse for these individuals is this simple fact: Financial fraud crimes are excluded from commercial insurance coverage for corporate officers and directors. All of the signatory officials on the 10-K, except for Tom Fanning and Christopher Womack, must fend for themselves in a Sarbanes-Oxley investigation and prosecution, as was the case in HealthSouth.
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