Convicted CEO will get $2.5 million salary plus a bonus while serving prison time
Monday, August 2nd 2004, 6:26 am
By: News On 6
PORTLAND, Ore. (AP) _ Unlike many fellow inmates, Andrew Wiederhorn won't have to worry about finding a job when he's released from federal prison. In fact, the CEO of Fog Cutter Capital Group will be making $2.5 million while he serves his 18-month sentence.
His company's board of directors voted to keep Wiederhorn on the payroll and even make him eligible for a bonus after he pleaded guilty to a pair of felonies in the financial collapse of a company that loaned him $160 million.
He was scheduled to report to prison Monday. Fog Cutter has said retaining Wiederhorn was crucial because of his skills. He also had threatened legal action if the company didn't keep him.
Wiederhorn pleaded guilty June 3 to filing a false tax return and paying an illegal gratuity to the former chief executive of the company that loaned him money before he switched over to Fog Cutter. Even so, Fog Cutter has been warned it could be delisted from the Nasdaq Stock Exchange and its auditors have resigned.
The Fog Cutter deal is nearly unprecedented in this era of corporate scandal, when domestic diva Martha Stewart voluntarily resigned her top post after she was indicted in a stock trading scandal, and most top Enron Corp. executives quit or were fired after the giant energy company declared bankruptcy.
The deal caught the attention of investors and the financial press. On June 10, TheStreet.com, a Web-based financial news site, listed Wiederhorn's deal in its column, ``The Five Dumbest Things on Wall Street This Week.''
``It's incredibly unusual,'' said Mark DeFond, a University of Southern California business professor. ``These issues of management integrity have always been important and have never been more important than now.''
But Wiederhorn insists his case is different from Enron or Stewart because there was no criminal intent and because he relied on the advice of attorneys and accountants to make decisions that ultimately resulted in his convictions.
Lance Caldwell, the assistant U.S. attorney who prosecuted Wiederhorn, said the case was complicated and suffered from the loss of its star witness, Jeffrey Grayson, the founder and former CEO of Capital Consultants, the company that loaned Wiederhorn $160 million before it collapsed in September 2000 and was seized by federal regulators.
Grayson suffered a debilitating stroke in May 2002 and has been unable to testify.
The Fog Cutter decision to pay Wiederhorn while he is in prison and provide $2 million in restitution on his behalf came as a surprise to prosecutors the morning after the plea was entered. ``We had no hint that Fog Cutter intended to retain Wiederhorn or reimburse him,'' Caldwell said.
Wiederhorn, 38, earned a reputation as a financial wunderkind in the early 1990s as he turned investments in the secondary mortgage loan market into lucrative business. By 1997, he had become one of the five highest-paid chief executives in Oregon.
But within a year, in 1998, financial problems in Eastern Europe and Asia triggered an international monetary crisis that ultimately forced Wiederhorn to seek loans to shore up his former company, the Wilshire Financial Services Group, which had become dangerously overextended.
Wiederhorn turned to Grayson and Capital Consultants for help, a company with a solid reputation but that also was struggling.
The difference, Wiederhorn said, is that Capital Consultants was being kept afloat illegally in what prosecutors later called a giant pyramid scheme that resulted in criminal convictions against top executives.
Wiederhorn said he became collateral damage when the loan from Capital Consultants pulled him into the federal investigation of Grayson.
Lanny Davis, former special counsel to President Clinton, led a team that eventually negotiated Wiederhorn's plea deal. He emphasized that the plea deal involved Wiederhorn's old company, and Fog Cutter is not involved in any way with Wilshire or the investigation that led to the conviction.