Risky Business

A former employee says Maricopa County is better at covering up than cleaning up its environmental hazards. And that could get the county in trouble for financial fraud--again.

Even Walters is surprised by the tone and bluntness of this smoking gun.
"I'm glad they were just talking about firing me and not . . . well, I hope they were just talking about firing me," he says.

The county was unable to find this e-mail when New Times asked for it, under the state public records law. Loretta Barkell, a finance division employee who was one recipient of the message, acknowledged receiving the e-mail but said she couldn't remember the specific contents. Jane Huff, head of the county's computer services division, was also listed as a recipient. Huff denies deleting or destroying the message.

But Walters thinks it fits the bizarre, cloak-and-dagger turn his entire experience with Maricopa County has taken.

"I've met people under cover of darkness, in parking garages, so they could hand me documents because they're afraid of associating with me," Walters says.

Another county employee, who spoke to New Times on condition of anonymity for fear of being fired, supports Walters' version of events. The employee claims to have attended a meeting where Walters' termination was discussed, around September of last year.

"It was decided they would--the term they used was 'sweep'-- Michael's computer," the employee recalls. "They were looking for anything they could use to relocate him, or Deborah [Larson] could use to fire him."

The reason they wanted to look into Walters' computer, this employee says, was because Bergen thought Walters might be using it for non-county business, and in case Walters had saved e-mails from Bergen and Larson.

The employee says Huff "confidentially swept his computer that day or the day after that meeting. . . . From that, I watched the demise of Michael. It took some time, but I watched it happen." (Huff denies this; she says she was never asked to sweep Walters' computer.)

Deborah Larson resigned from county government at the beginning of this year, shortly after being suspended for the comments she made in her e-mails. Roland Bergen resigned later to take a job at Intel. Neither returned phone calls from New Times.

Walters recently filed a $4.7 million claim against Maricopa County for wrongful termination under a statute which prohibits firing an employee for refusing to take part in an illegal act. He is quick to point out, however, that he doesn't think of himself as a whistle-blower, or a disgruntled employee.

"A whistle-blower is somebody who complains about something that's occurring where they work. This happened to me, and after it happened to me, I told people what had happened," he explains. "It's not in my nature to be a whistle-blower. . . . I thought they had not followed the rules, and I tried to point it out to them, and boy, were they mad."

If Walters is right, the county has failed to disclose significant information on its financial statements--again.

Last year, Maricopa County was charged with fraud by the SEC for failing to report an operating deficit of nearly $100 million on financial statements and in county-issued bond documents. The county signed a cease-and-desist order as part of a settlement with the SEC, in which it agreed it violated antifraud regulations and promised not to do so again. The county's former advisers, the firm of Peacock, Hislop, Staley and Given, as well as Larry Given, who was in charge of the account, were fined a total of $75,000.

The county's real punishment came when Moody's Investors Service and Standard and Poor's, two financial agencies, dropped Maricopa County's bond rating from AA to A. Dropping the rating made the bonds the county issued worth less to investors, because the bonds paid back at a lower rate of interest.

That was when Deborah Larson was brought in as a financial whiz kid to help the county clean up the mess. She was successful in getting Maricopa County off its spending binge and back in the black, as well as back in the good graces of the bond-rating agencies.

But any new accounting sleight of hand could put the county back on the financial community's bad-check list.

Failing to disclose environmental liabilities is a violation of SEC guidelines and accepted accounting practices, according to Karen Smith, assistant professor of accounting at Arizona State University.

"If it's probable, it definitely has to be included as a liability. Definitely," Smith says. Failure to include a reliable estimate of that amount can lead to action by the SEC and lawsuits from bond purchasers, she says.

The county also might have violated SEC guidelines by not reporting its probable environmental costs as a separate item under liabilities on its 1996 annual report. Instead, county officials chose to lump the amount into the long-term debt account, where no one could see it, according to e-mail from finance division staff.

Because of its previous problems with the SEC, the county did take steps when issuing new bonds to reassure investors. For example, Maricopa County hired Squire, Sanders and Dempsey to make certain it was complying with disclosure requirements on one of the bonds--a bond Walters says uses the flawed numbers.

Squire, Sanders and Dempsey did not return calls from New Times, but William DeHaan, who acted as bond counsel to the county on that sale, says he doesn't think investors have anything to worry about.

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