Lawson Products to pay feds $30 million
Industrial Distribution staff -- Industrial Distribution, 8/12/2008 9:36:00 AM
Lawson Products Inc. settled a pending lawsuit with the federal government by agreeing to a $30 million payment.The Des Plaines, Ill.-based MRO distributor also posted its second-quarter results, reporting a sales decrease of 2 percent and a net loss of nearly $30 million.
Federal prosecutors originally accused 13 people, including seven former Lawson employees, of handing out $140,000 in kickbacks to customers. Twelve of the 13 defendants later pled guilty.
Lawson, which ranked 19th on INDUSTRIAL DISTRIBUTION’s 2008 Big 50 list of distributors, was not charged in the original lawsuit.
That case alleged that the company and one of its subsidiaries, Drummond American Corp., used a variety of gift certificate awards to secure contracts. Salespeople allegedly used the certificates as a form of kickbacks, the prosecutors allege, believing the certificates were less traceable than cash.
The company has said it fired several employees in response to the investigation, instituted a new ethics program and cooperated with federal authorities.
But the U.S. Attorney's office for the Northern District of Illinois formally charged the company with mail fraud August 12 in connection with the scheme and filed separate charges against two former sales managers and a third man whose firm administered one of the customer reward programs allegedly manipulated in the kickbacks scheme.
A total of 19 defendants, including the original 13, have been charged in the case, which involved investigations in the Chicago area, Springfield, Ill., Dayton, Ohio, and Philadelphia
Lawrence Keogh, 79, was charged with aiding and abetting a tax evasion and tax fraud conspiracy. Keogh is CEO of Keogh Inc., which administered Lawson’s “Winners Choice” customer reward program. He faces a maximum of 5 years in prison and a $250,000 fine if convicted.
Also charged were Roger Cannon Jr., 38, of Palatine, Ill., a Drummond American sales agent, district manager and regional manager accused of mail fraud; and Leroy Wittle, 65, of Alexandria, Va., a Lawson district manager in Washington, D.C., who is charged with bribery. Cannon Jr. faces a maximum of 20 years in prison and a $250,000 fine if convicted. Wittle faces a maximum of 2 years in prison and a $250,000 fine if convicted. Under Lawson’s agreement with the feds, which defers prosecution for three years, “Lawson admits that it is responsible for the acts of its officers, employees and sales agents,” prosecutor Patrick Fitzgerald's office said in a statement.
Criminal charges will be dismissed in three years if Lawson abides by the terms of the settlement. The bulk of the payment will fund a civil forfeiture judgment, with the remaining $822,370 to be paid as restitution to customers damaged when employees gave business to Lawson in return for the alleged kickbacks.
“We are pleased to have reached this agreement with the U.S. Attorney’s Office, which enables us all to move forward with our business plan,” executive vice president and general counsel Neil Jenkins said. “Throughout this process, we have been committed to working with the government to uncover the truth and we have promised our continued cooperation. We are confident we have taken the necessary actions and implemented the proper processes, oversight and programs so that such events are not repeated and we can continue to run our business with integrity.”
“The company is financially sound—we have a strong balance sheet, a solid underlying business and we are confident our go-forward strategy positions us well in the market,” added president and CEO Thomas Neri.
But second-quarter sales slipped 2.2 percent to $126.3 million, compared with $129.2 million during the same period last year, and the settlement pushed Lawson’s quarterly net loss to $29.7 million, compared with $349,000 during the second quarter of 2007.
“We are encouraged by the success of our cost reduction and other initiatives as we were able to generate operating income of $4.9 million before the charges in the second quarter of 2008,” Neri said.
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