Ex-exec levies attacks

Conseco Inc. has lost its unified front.

Former Conseco Finance CEO Bruce Crittenden, in papers filed in connection with a federal lawsuit here, alleges his superiors "knew or should have known" the company he led was headed for financial disaster.

Crittenden had been with the business, originally known as Green Tree Financial, before its $6 billion sale to Conseco in 1998 and became president soon afterward, succeeding founder Larry Coss.

In November 2000, he assumed the additional post of CEO, broadening his authority to include accounting functions previously overseen by Conseco.

"In that capacity, Crittenden inherited the financial time bomb that had been ticking since Coss' prior decision to write as many loans as possible to increase Green Tree's market share, without regard for long-term consequences," Crittenden alleges in one document filed in U.S. District Court.

He added: "The predictable result of that prior strategy was large numbers of bad loans, leading to massive write-downs."

Crittenden, Conseco's fourth-highest-paid executive in 2000, is the first top-level insider to publicly suggest that top executives knew Conseco Finance was sliding into a tailspin, even as they continued to tout the stock as undervalued.

Specifically, he charges that Conseco's controversial insider-loan program-under which he borrowed $6 million in the late 1990s-"was designed to disguise Conseco Inc.'s actual financial situation by creating the illusion of increased internal and external demand for the company's stock."

"The true purpose [of the plan] was to prop up Conseco Inc.'s stock and give the false impression that the company was thriving when, in fact, top management of Conseco Inc. knew the company was in trouble," Crittenden alleges.

Conseco spokesman Mark Lubbers and former Conseco CEO Stephen Hilbert declined to comment. Conseco attorneys did not return calls, and Coss could not be reached.

Crittenden, 51, who lives in St. Louis, did not return calls. His attorney, Mark D. Wisser of Minneapolis, said: "The allegations and pleadings stand for themselves."

Attorneys experienced with class action litigation say the plaintiffs in the nearly dozen cases pending against Conseco might be able to enlist Crittenden to testify on their behalf.

"I think it would be a pretty big blow," said Indianapolis attorney Jim Knauer, who is serving as local counsel in several of the suits. He noted that nearly all include allegations that Conseco misrepresented its profitability.

"It's good stuff if you are a plaintiff," said Stephen Caplin, an attorney who represented plaintiffs in securities-fraud classaction litigation Conseco settled in January.

On the other hand, attorneys say, the company might be able to argue that the information isn't new, that shareholders already had ample signs of trouble, or that the allegations cover periods of time predating the events focused on in the current spate of lawsuits.

Attorneys say Conseco also could attempt to undermine Crittenden's integrity. If he knew things were amiss, they say, why didn't he alert the board? Asked about that last week, Crittenden's lawyer, Wisser said only: "Your question assumes he didn't."

In the litigation that was settled, Conseco did not admit the allegations but agreed to pay $120 million. All of that has been paid, except for $25 million Conseco alleges is owed by one of its insurance carriers. Conseco and the carrier are litigating the dispute.

The new round of lawsuits focuses on upbeat statements made by Gary Wendt, who served as Conseco's CEO from June 2000 until stepping down under pressure two months ago.

Those and a host of other suits against Conseco were automatically placed on hold when the company filed for Chapter 11 bankruptcy court protection last week. However, attorneys can ask the court for permission to allow their cases to proceed.

Because of Conseco's financial woes, attorneys say plaintiffs' best bet is to tap remaining insurance coverage. A Conseco spokesman was not immediately able to provide information late last week on Conseco's levels and types of insurance coverage.

Crittenden's dispute with Conseco surfaced publicly in late October, after Conseco sued him, alleging that his voluntary departure should have forced him to begin making payments on the loan he took out to buy stock.

A month earlier, court papers show, Crittenden had filed an arbitration proceeding with the American Arbitration Association in that case, he says he was "forced out," thus entitling him to two years of base salary and other compensation.

He also accuses Conseco of defamation for publicly stating he resigned, which created the public impression "that Crittenden was a quitter who voluntarily walked away from the multitude of problems he inherited at Conseco Finance."

In fact, he said, Wendt and President Bill Shea undermined his authority by bringing in Chuck Cremens, ostensibly as a consultant, but with the real intention of grooming him to replace Crittenden.

Crittenden said after he expressed unhappiness with Wendt's and Shea's decisions, Wendt responded by issuing a news release announcing Crittenden's resignation and, within hours, elevating Cremens to CEO.

Conseco and Crittenden also are at odds over a $1 million payment that Crittenden contends was a bonus authorized by Coss for his agreeing to stay with Green Tree after the sale to Conseco.

"The money paid to Crittenden was a ... bonus that Coss authorized after Crittenden questioned Coss about the true financial condition of Green Tree," Crittenden alleges. He said Coss, who stood to make $30 million from the sale, needed Crittenden to stay to facilitate the deal.

"Coss said that Crittenden would have to sign a document labeled 'promissory note' to satisfy Conseco Inc.'s management, but Coss promised Crittenden that he never would have to repay the funds," according to Crittenden's court papers.