CEBC IN THE NEWS

Katun Ex-CEO to Pay Added Penalty

Published Thursday, April 15, 2004 in the Star Tribune.

By Terry Fiedler

Former Katun Corp. CEO Terence Michael Clarke will pay an additional $1.25 million in penalties for fraud charges, $50,000 of which will be directed to two nonprofit organizations that promote ethics programs all the way down to the grade-school level.

This is the first time extraordinary restitution has been directed to ethics education in Minnesota, according to Assistant U.S. Attorney Hank Shea, and one of few times it has occurred anywhere in the country.

U.S. District Judge Paul Magnuson, who sentenced Clarke on Tuesday, called the funds ethics "seed money."

"It's a start. Maybe this little courtroom in St. Paul will make a difference," Magnuson said.

The $50,000 is a small part of what could be available. Shea said that more than $500,000 in extraordinary restitution related to Katun, the Bloomington-based copier parts manufacturer, and its former executives could be directed to other ethics programs by the court. Shea is currently soliciting proposals from nonprofits that teach ethics.

Magnuson ordered that $25,000 be directed to the Center for Ethical Business Cultures, which is closely affiliated with the University of St. Thomas College of Business and the Carlson School of Management at the University of Minnesota; and to the Caux Round Table, which, among other projects, is developing ethics programs for grades K-12.

The Caux Round Table is an international organization of business and political leaders founded in 1986 in the town of Caux in the Swiss Alps.

Since 1994, the round table has advanced a code of business conduct -- an initiative that began in Minnesota. The organization's global executive director, former Hamline Law School Dean Steve Young, operates from offices in St. Paul. "We're hoping that other organizations will take advantage of this opportunity," said Shea.

Magnuson raised the idea of supporting ethics programs and asked the U.S. attorney's office to look into the possibility, Shea said.

With other Katun restitution in play, Shea said, there's the "potential to make a very, very strong statement about ethics promotion and training. Prosecution of offenses [alone] is never going to solve the problem of lack of business ethics."

Clarke pleaded guilty to two counts of fraud related to schemes to pay Xerox Corp. employees for Xerox pricing information and authorizing Katun employees to offer gifts to people who provided other confidential information, including passwords to protected Web sites.

As part of a plea agreement and sentencing, Clarke agreed to pay $925,000 in restitution to Ricoh Corp. and $25,000 to Xerox Corp., both Katun competitors. Another $250,000 will go to a crime victim fund in Washington, D.C., and the other $50,000 will go for ethics education.

Clarke, who already is serving a two-year prison sentence on 2003 tax evasion charges, was not given additional jail time, though he could have received up to 16 months, according to sentencing guidelines. Clarke has already paid $6 million in criminal penalties and $4 million in back taxes, interest and penalties, in addition to the $1.25 million ordered Tuesday.

Clarke co-founded the company in 1978 and was its leader until he was fired by the board of directors in June 2000. All of his tax evasion charges stemmed from his activities at Katun.

The federal investigation of Katun has produced eight indictments of seven former executives and six plea agreements. The company itself agreed in January to plead guilty to 12 counts of fraud and to pay $11 million in fines and restitution for illegally obtaining pricing information from competitors' Web sites, keeping money owed to customers and engaging in deceptive practices to secure lower airline fares. The penalty is believed to be the largest ever assessed against a business in Minnesota.

Katun has annual revenue of about $350 million and is owned by Banc of America Capital Investors and Svoboda, Collins LLC.

© Copyright 2004 Star Tribune. All rights reserved.

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