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July 17, 2001
Sunbeam's Dunlap Hid Dismissals
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red J. Dunlap, whose slash-and-burn tactics fueled both his rise and fall as CEO of Sunbeam in the 1990s, managed to hide firings from two executive positions earlier in his career.

Dunlop, according to The New York Times, somehow erased both jobs from his employment history, and no one who checked his background discovered the omissions.

He was fired by Sunbeam in 1998, and fraud allegations followed. Remarkably, they were similar to the allegations made against him in one of the other two jobs, two decades earlier.

In both cases, the Times says, amazingly high profits were reported and used to justify big payouts to Dunlap. And in both cases, auditors later concluded the profits were fictitious.

Neither Sunbeam nor the Securities and Exchange Commission, both of which claim he acted fraudulently, knew until now that Dunlap had faced similar allegations a quarter century ago.

The Times reports that it uncovered the allegations in long-forgotten court records stored in the National Archives.

Dunlap, through his lawyer, Frank Rizzano, declined to comment on whether he had misled employers about his employment history. The first fraud accusations, which Dunlap denied when they were made, were never proved, and Rizzano described them as "old and stale" and of no interest now.

Jerry Levin, who succeeded Dunlap at Sunbeam, disagreed. "We were shocked when we heard about this," he told the Times. "I find it most unusual that anyone could be hired as a chief executive of a major company without having their background thoroughly checked."

"This seems to have escaped everyone's attention," he said.

Dunlap has denied doing anything wrong at Sunbeam and has taken the company to arbitration to force it to honor the contract he was given in early 1998, just months before he was fired. He is also preparing to defend himself in two court cases, one filed by Sunbeam shareholders and one by the SEC.

Now 63 and living in Boca Raton, Fla., Dunlap has not taken a job since leaving Sunbeam, according to the Times.

The similarities between Dunlap's early troubles and those he faces today are striking. At both the Nitec Paper Corporation, a paper mill he ran during the 1970's, and at Sunbeam, high reported profits led to lucrative deals for Dunlap. At Nitec, his bosses agreed to pay him $1.2 million. At Sunbeam, they agreed to double his base pay to $2 million a year.

"It is remarkably analogous to our situation," Levin said.

Sunbeam, like virtually all major companies, had relied on an executive search firm to find the best person for the job of CEO. Daniel Margolis, a spokesman for the firm in this case, Korn/ Ferry International, said his firm "conducted an exhaustive search that resulted in the Sunbeam board selecting Dunlap."

When asked how the firm had missed the holes in Dunlap's employment history, he told the Times, "It is our policy not to comment on our clients' business issues."

Sunbeam has filed a bankruptcy reorganization plan that would hand the company over to its bank creditors, leaving nothing for shareholders or bondholders.

History repeats itself

In 1974, Dunlap became president of Nitec, which operated a paper mill in Niagara Falls, N.Y. Six months earlier, he had been fired by Max Phillips & Son of Eau Claire, Wis., after just seven weeks.

Phillips, the first employer, said Dunlap had neglected his duties and spoken so disparagingly of his boss that he hurt the company's business, according to court papers obtained by the Times.

At first, the newspaper said, all went well at Nitec. The company report small profits in 1974 and 1975, and Dunlap shared Christmas dinner in both years at the home of Nitec's chief executive, George S. Petty.

"Petty and Dunlap appeared to be pretty good friends," recalled Richard Cutting, who audited Nitec's books as a partner at Arthur Young.

Profits surged in 1976, and Dunlap was given credit. But his management style was grating, and on Aug. 30, 1976, he was fired by Petty, the principal owner of the company.

Still, Dunlap left on excellent terms. The fiscal year was expected to produce profits of almost $5 million. Petty agreed to have another company he controlled pay $1.2 million for Dunlap's stake in Nitec -- a stake that had cost him only a nominal sum. The money was to be paid in 1979.

But weeks after Dunlap departed, the Times reports, the audit team from Arthur Young concluded that there were no profits. Instead, a loss of $5.5 million was posted.

The auditors found evidence of expenses that were left off the books, of overstated inventory and nonexistent sales. Nitec's books had overstated its cash by $201,700. Petty canceled the agreement to buy Dunlap's stock, and Dunlap responded by suing in federal court in New York. Nitec countersued, alleging fraud.

The case dragged on for years, with Dunlap enduring 38 days of depositions. Then, in 1982, Nitec filed for bankruptcy. The mill was seized by the city of Niagara Falls for nonpayment of taxes and remained closed for years.

Nitec's legal battles with Dunlap ended inconclusively. In July 1983, Nitec told the bankruptcy court that it would cost $600,000 to bring the case to trial, money that the company did not have. The case was settled with Dunlap being paid $50,000, an amount that was far less than his lawyer's bills. The case seeking recovery from the insurance company was dropped.

Dunlap had sued Max Phillips after he was fired, and that suit was more successful than his later one against Nitec. Phillips eventually agreed to pay him $55,000, which included $10,000 for breach of Dunlap's three-year contract, $30,000 for unspecified personal injuries and $15,000 for "all damages to Dunlap's reputation and good will in the industry." Officials of Max Phillips did not return phone calls seeking comment.

By the time Nitec's bankruptcy case was closed in 1994, Dunlap had become chief executive of Scott Paper, where he fired thousands of workers and gained a reputation as a determined cost-cutter.

Scott had retained Spencer Stuart, an executive search firm, when it was looking for a new chief executive. Like Korn/Ferry two years later, Spencer Stuart did not discover the omissions in Dunlap's employment history.

The firm said it had talked to many people who had worked with Dunlap at previous jobs, including American Can, where he went after the Nitec firing, but "did not believe that his record prior to American Can was relevant to the Scott Paper assignment." The firm continued, "We are confident that the portrait we developed and presented to Scott Paper reflected his pertinent experience and executive talents."

It would have been possible to learn that Dunlap's résumé was inaccurate. American Can knew he had worked at Nitec, and included it in a 1981 news release, still available on electronic retrieval services, announcing a promotion. And Dunlap was quoted in a number of publications while he was at Nitec.

One of Nitec's allegations, in fact, was that Dunlap had used company funds "to conduct a personal publicity and self-glorification campaign."

To view the New York Times story, click here. Registration required.
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