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US: Ex-Wal-Mart Executive Expected to Plead Guilty to Fraud

by Michael BarbaroThe New York Times
January 7th, 2006

The former vice chairman of Wal-Mart Stores, Thomas M. Coughlin, has agreed to plead guilty to federal charges that he defrauded the company of at least $350,000, people close to the negotiations said yesterday.

Mr. Coughlin, once the retailer's No. 2 executive, was ousted last year amid accusations that he used fake invoices and misappropriated gift cards to pay for items like contact lenses and a custom-made dog kennel.

He has agreed to plead guilty to five counts of wire fraud and one count of tax evasion, people close to the inquiry said, and is scheduled to enter the pleas this month in federal court in Fort Smith, Ark.

Defense lawyers and prosecutors expect Mr. Coughlin to be sentenced to slightly more than two years in prison, said people close to the case, who spoke on condition of anonymity because the investigation into the matter is still open. The court is also expected to order Mr. Coughlin to make restitution to Wal-Mart for benefits he received and money he misappropriated.

The guilty plea casts considerable doubt on Mr. Coughlin's assertion that he used company money to reimburse himself for a secret campaign, approved by senior executives, to pay union members for information about their organization drives, a potential violation of federal law.

Mr. Coughlin is still expected to advance that argument before a judge during sentencing. A person close to the matter said that the plea agreement explicitly mentions a plan to use Wal-Mart's money to buy information that would disrupt efforts to unionize Wal-Mart Stores.

Neither the United States attorney for the Western District of Arkansas nor Wal-Mart, after sifting through thousands of pages of documents, found evidence that such a proposal existed, people close to the investigation said.

A representative for Wal-Mart declined to comment last night.

The plea agreement, which has been in the works since October, represents a staggering outcome for Mr. Coughlin, who was once considered a strong candidate to become chief executive of Wal-Mart.

Mr. Coughlin came to Wal-Mart in 1978 as a chief of security, rose quickly and two decades later, oversaw Wal-Mart, Sam's Club and Walmart.com. Mr. Coughlin, a hunting buddy of Wal-Mart's founder, Sam Walton, was a celebrated figure within the company, viewed as the final link to the retail chain's humble roots.

But according to legal documents that Wal-Mart made public last year, Mr. Coughlin had for years relied on an intricate web of underlings to routinely approve purchases of gifts for himself ($900 worth of duck hunting gear) and even his son (a $1,700 computer).

Mr. Coughlin retired from Wal-Mart in January 2005 but remained on the board until March, when he was forced out.

A former aide to Mr. Coughlin, Robert Hey Jr., pleaded guilty in November to charges of wire fraud.

In one instance, according to a Wal-Mart report, Mr. Coughlin directed a subordinate to buy $2,000 worth of gift cards, which he said would be given to low-level employees to improve morale. Instead, Mr. Coughlin used the cards to buy wine and hunting gear, the report said.

In another case, Mr. Coughlin bought an all-terrain vehicle from a potential Wal-Mart supplier, using $8,500 in company money and permitting the supplier to cover the remaining $2,200, according to records. The arrangement violated Wal-Mart's ban on gifts from vendors that it has done or may do business with.

In the end, Mr. Coughlin's use of company money was discovered by a cashier, according to Wal-Mart. The employee tipped off executives when Mr. Coughlin tried to use a gift card, intended for rank-and-file workers, to buy a pair of contact lenses.

In July, Wal-Mart sued Mr. Coughlin, seeking to prevent him from collecting about $12 million in retirement benefits and to recover money the company said he had fraudulently siphoned from the company

In November, a state judge in Arkansas tossed out part of the lawsuit, citing an agreement that barred the former executive and the company from suing each other. Wal-Mart had asserted that Mr. Coughlin's conduct invalidated his retirement pact.

But a local judge ruled that Arkansas law did not require an executive to disclose misconduct before signing a release from liability. Wal-Mart, the court said, could pursue only claims of misconduct said to have been committed after Mr. Coughlin signed the agreement.

One question that remains is whether Mr. Coughlin's plea would lead the town of Bentonville, Ark., to reconsider the name of its new public library. The building, constructed with the help of $4 million from the Wal-Mart/Sam's Club Foundation and the Walton Family Foundation, was recently christened the Coughlin Library.



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