Fraud

A false representation of a matter of fact—whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed—that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury.

Legal Woes of Former CEO of Westar Energy Continue

David Wittig, the former chief executive officer of Westar Energy in Topeka, Kansas, was sentenced to 24 months in prison in February 2007 on charges of bank fraud, money laundering, and conspiracy. It was the third time that Wittig had been sentenced, after panels of the 10th Circuit Court of Appeals reversed two previous sentences due to errors that the trial judge had made in computing his sentence. In January, Wittig successfully appealed his conviction of other fraud charges also stemming from his role with Westar and awaits retrial on those charges.

Wittig worked at a Wall Street investment bank before taking over as CEO and chairman of the board of Westar Energy, the largest public utility in the state of Kansas. He was also a borrower from Capital Bank in Topeka. At that time, Clinton Odell Weidner II was the presi-dent of Capital Bank and also served as Wittig's loan officer. According to court records, Wittig had a net worth of more than $33 million. He had borrowed several million from the bank to purchase and to renovate his home in Topeka.

In April 2001, a bank customer brought to Weidner's attention a real estate project in Scottsdale, Arizona, which would require an investment of $1.5 million. Weidner asked Wittig if the latter would like to enter into the transaction, but Wittig declined. However, Wittig said that he would loan Weidner the $1.5 million if Weidner would increase Wittig's line of credit at Capital City by the same amount. Weidner increased Wittig's line of credit, and then on April 30, 2001 transferred $1.5 million from Wittig's account to make the down payment for the real estate development project. Weidner later provided Wittig with a promissory note for the $1.5 million.

Both Weidner and Wittig attempted to conceal the fact that the extension of Wittig's credit was used to make Weidner's down payment on the Arizona property. The men did not disclose the loan in various documents that were filed with the bank. Bank officers finally discovered the loan in late 2001. At that time, Weidner asked a friend to forward funds to Weidner's partner in Arizona, who in turn transferred funds to Wittig's bank account. Wittig subsequently paid down his line of credit at Capital Bank by $1.6 million. The bank finally discovered the true nature of the loan on March 16, 2002, at which time the bank placed Weidner on administrative leave. The bank asked Wittig to increase the collateral for his line of credit, which he did. He paid off the line of credit three months later.

A federal grand jury with the U.S. District Court in Topeka indicted Wittig and Weidner on November 7, 2002. The men faced a total of six counts, including four counts of making a false bank entry, one count of conspiracy to submit false entries to a federally insured bank and to launder money, and one count of money laundering. Wittig announced his resignation from Westar on November 22, 2002.

After Wittig's resignation, some of his other illicit activities more directly related to Westar came to light. He and former chief strategy officer Douglas Lake were accused of engineering extravagant salaries and benefits for themselves while hiding their actions from Westar's board of directors and federal regulators. Prosecutors charged Wittig with 39 counts on charges that included conspiracy, wire fraud, and money laundering. Lake was charged with 30 similar counts.

Wittig has faced a somewhat confusing series of trials and appeals between 2003 and 2007. In 2003, a federal court convicted Wittig on all six counts related to the transactions with Weidner. The trial court applied the Federal Sentencing Guidelines and determined that his sentencing range was between 51 and 63 months. The court sentenced him to 51 months' imprisonment followed by three years of unsupervised release. The court also ordered Wittig to pay a $1 million fine.

In February 2006, the 10th Circuit Court of Appeals affirmed the conviction, but vacated and remanded the sentence because the appellate court determined that the trial court had miscalculated Wittig's sentence. United States v. Weidner, 437 F.3d 1023 (10th Cir. 2006). On remand, U.S. District Judge Julie Robinson sentenced Wittig to 60 months. The 10th Circuit in November 2006 vacated this sentence on grounds similar to the February opinion. United States v. Wittig, No. 06-3166, 2006 WL 3378451 (10th Cir. Nov. 22, 2006). After the second remand, Robinson in February 2007 reduced the sentence to 24 months. United States v. Wittig, 474 F. Supp. 2d 1215 (D. Kan. 2007).

Wittig and Lake were convicted in September 2005 on charges stemming from the allegations that the men stole millions from Westar. They were sentenced to 18 years and 15 years, respectively, for their involvement in the scheme. However, the 10th Circuit in January 2007 reversed the convictions. The appellate court ruled that prosecutors had failed to prove that Wittig and Lake were required to disclose certain activities on forms filed with the Securities and Exchange Commission, and thus the court determined that the men had not supplied false or fraudulent information in those reports. Moreover, the court determined that the prosecution had not proven that the Wittig and Lake had engaged in unlawful wire fraud, which precluded convictions for money laundering. The court remanded the case for a retrial. United States v. Lake, 472 F.3d 1247 (10th Cir. 2007).

Wittig was imprisoned from January 2006 until February 2007 because he violated the terms of his release from prison. After his conviction for corporate fraud, the trial court allowed Wittig to remain free until his attorneys exhausted the appeals process, provided that he did nothing to hide the value of his assets. Prosecutors persuaded Judge Robinson that Wittig had manipulated bank accounts and sold stocks since the time of his conviction in order to transfer wealth to his wife. Robinson ordered Wittig to return to detention. Wittig was released on bond on February 12.