US Attorney: ‘Honest services’ ruling led to dismissal of charges against ex-Westar executives

By Roxana Hegeman, AP
Monday, August 23, 2010

Feds: Ruling led to dismissal against Westar execs

WICHITA, Kan. — A recent U.S. Supreme Court ruling requiring proof of kickbacks or bribes in prosecutions involving the theft of so-called honest services left prosecutors with “little choice” but to dismiss charges against two former Westar Energy executives, the U.S. attorney’s office said Monday.

“The law no longer supported our position,” U.S. Attorney Barry Grissom said in a statement. “We were duty-bound not to go forward with the prosecution.”

Former Westar Chief Executive David Wittig and his top strategy officer, Douglas Lake, were charged in 2003 with conspiring to inflate their compensation from the Topeka-based utility and taking steps to hide their actions.

U.S. District Judge Julie Robinson dismissed all charges against them Friday at the request of federal prosecutors.

That prompted Jim Ludwig, Westar Energy’s executive vice president, to issue a statement saying the company disagreed with the Justice Department’s decision and planned to pursue civil claims in an arbitration proceeding that had been put on hold pending the criminal case. He noted investors, who had borne the damages and expenses, had not received any restitution.

“We are extremely disappointed that the Department of Justice has given up pursuing justice against Wittig and Lake because we believe our investors still deserved an opportunity, after this long ordeal, to see whether a jury would hold them accountable for their actions,” Ludwig said.

A third trial date for the men had been pending. Their first trial ended in a hung jury and a conviction in their second was overturned.

In June, the U.S. Supreme Court narrowed the scope of the “honest services” law, which made it a crime to “deprive another of the intangible right to honest services.” The high court’s ruling in the case against former Enron CEO Jeffrey Skilling found theft of honest services only is relevant in cases involving bribes and kickbacks.

“A great deal of consideration was given to this decision, both here and in Washington,” Grissom said.

Defense attorneys, who speculated Friday that the Supreme Court’s ruling was behind prosecutors’ decision, did not immediately return a Monday e-mail message seeking comment about the civil proceeding.

Wittig, 55, of Topeka, joined the Topeka-based utility in 1995 and became its president and chief executive in 1998. Lake, 60, of New Canaan, Conn., joined the firm in 1998. Both were forced out in late 2002.

Westar said Monday that its arbitration proceedings are confidential with no public filings available, but the now-defunct indictment prosecutors filed in the criminal case in 2004 offers a glimpse at some of the long-running issues.

Wittig was paid more than $25 million in compensation and benefits during his tenure with the company, the indictment showed. Lake was paid more than $7 million.

During the time Wittig and Lake were in charge, Westar’s stock price plummeted from $44 per share to less than $9 per share. The company’s debt grew to more than $3 trillion and its future was poised “on the brink of bankruptcy,” the government contended.

The government had alleged the two men circumvented internal controls designed to ensure accountability, used corporate attorneys to get rid of board members critical of management and monitored employee phone calls to identify people who were contacting the press and state regulators.

Prosecutors had cited a 2001 program dubbed “Project X,” in which Wittig allegedly contracted, at a cost of $100,000, attorneys and a New York investigative firm to analyze records of employee phone calls and e-mails and check into the backgrounds of employees, reporters and regulators.

At the time the firm was laying off hundreds of employees and instituting cost saving measures, Wittig spent more than $6.5 million to renovate the company’s executive suites with a gourmet kitchen and dining room, including a $29,000 custom built television wall unit.

The government also contended the two men extensively used the firm’s three corporate aircraft for personal benefit, including a 2002 trip in which Wittig vacationed in France and England. Lake reportedly used the company plane as a shuttle between his New York home and his vacation home in West Palm Beach, Fla.

The utility said its investors pay for all expenses from legal proceedings against Wittig and Lake, adding its customers do not pay any of those costs through their electric rates. The Kansas Corporation Commission, which regulates electric rates in Kansas, confirmed those legal costs were not passed on to customers.

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