EXCLUSIVE to Brad Blog
Eight Current and Former Executives Named as Co-Defendants, Including
former CEO O'Dell and New CEO Swidarski
Class Action Suit Alleges Fraud, Insider Trading, Manipulation of
Stock Prices, Concealment of Known Flaws in Voting Machines and Company Structural
The BRAD BLOG can now report that a
Securities Fraud Class Action suit has been filed against Diebold, Inc. (stock
symbol: DBD) naming eight
top executive officers in the company as co-defendants. The suit has been filed
by plaintiff Janice Konkol, alleging securities fraud against the North Canton,
Ohio-based manufacturer of Voting Systems and ATM machines on behalf of investors
who owned shares of Diebold stock and lost money due to an alleged fraudulent
scheme by the company and its executives to deceive shareholders during the
"class period" of October 22, 2003 through September 21, 2005.
The suit was filed today in U.S. Federal District Court in Ohio and alleges
the company "artificially inflated" stock prices through misleading
public information designed to conceal the true nature of Diebold's financial
and legal situation. The defendants are also alleged to have attempted to disguise
well-known and ongoing problems with Diebold's Voting Machine equipment and
software. Additionally, the suit alleges insider trading by defendants resulting
in proceeds of $2.7 million. Remedies are sought under the Securities Exchange
Act of 1934.
The suit, filed by the law firm Scott+Scott, LLC on behalf of Konkol and the
plaintiff class, names former Diebold CEO and Chairman, Walden O'Dell as a co-defendant
along with seven other current and former officers of the once-venerable company.
News of the pending litigation was first reported as imminent in an exclusive
report by The BRAD BLOG late last week.
Yesterday, in a surprise announcement, O'Dell
unexpectedly resigned from the company. A Diebold press release described
O'Dell as leaving the company for "personal reasons". He was immediately
replaced by the company's president and chief operating officer, Thomas W. Swidarski,
who had directly overseen Diebold's Election Systems subsidiary division for
some time. Swidarski is also named as a co-defendant in today's class action
After news was released of weaker-than-expected third-quarter earnings on September
21, Diebold stock prices plummeted
15.5% in unusually heavy trading that resulted in a one day sell-off costing
investors more than $40 million dollars. The complaint describes Diebold and
the co-defendants as having "failed to disclose adverse facts known"
to the company and that they "participated in a fraudulent scheme and course
of business that operated as a fraud."
The suit, to be released in full by The
BRAD BLOG shortly, alleges Diebold and the eight co-defendants failed to
alert investors to adverse facts known to the company, choosing instead to participate
in a "fraudulent scheme and course of business" that operated as a
fraud or deceit on the company's shareholders.
The suit describes the liabilities of the company and co-defendants as follows...
Each defendant is liable for (a) making false statements, or (b) failing
to disclose adverse facts known to him about Diebold. Defendants’
fraudulent scheme and course of business that operated as a fraud or deceit
on purchasers of Diebold publicly traded securities was a success, as it
(a) deceived the investing public regarding Diebold’s prospects and
business; (b) artificially inflated the prices of Diebold’s publicly
traded securities; (c) allowed insiders to sell over 51,000 shares of Diebold
stock, for proceeds of $2.7 million; and (d) caused plaintiff and other
members of the Class to purchase Diebold’s publicly traded securities
at inflated prices.
Named as co-defendants in the suit along with former CEO O'Dell and new CEO Swidarski
are President of International Operations, Michael J. Hillock; Senior Vice President
of Customer Solutions, David Bucci; Interim Chief Financial Officer, Principal
Accounting Officer and Controller, Kevin J. Krakora; Vice President and Chief
Information Officer, John M. Crowther; Senior Vice President and CFO, Gregory
T. Geswein; and President and COO, Eric C. Evans. (Titles applied to the named
co-defendants during the class period. Evans, for example resigned from the company
on the same day as the Sep. 21, 2005 announcement.) "Each individual defendant,"
the suit points out, "owed a duty to the Company and its shareholders not
to trade on inside information."
The claim cites a number of allegedly misleading news releases pertaining to
the fitness and security of election systems as contracted by Diebold in San
Diego County in 2003; their settlement for $2.6 million with the state of California
in 2004, wherein Diebold is alleged to have concealed "the dimensions and
scope of internal problems at the Company" from investors; and an "astonishingly
low and incredibly inaccurate" statement about "restructuring charges"
in the Sep. 21 announcement.
Once again, quoting from the lawsuit:
During the Class Period, defendants knew and concealed that:
(a) the Company remained unable to assure the quality and working order
of their voting machine products;
(b) the Company lacked a credible state of internal controls and corporate
(c) the 2004 settlement with the State of California served to conceal
from investors the dimensions and scope of internal problems at the Company,
impacting product quality, strategic planning, forecasting, guidance, internal
controls and corporate compliance; and
(d) the Company’s "prediction" of astonishingly low and
incredibly inaccurate restructuring charges for the entire 2005 fiscal year
grossly understated the true costs defendants faced to restructure the Company.
The complaint alleges that the company lied to investors about the true costs
of its restructuring activities, concealing the fact that Diebold was facing
far worse restructuring issues than publicly represented -- indicative of far
greater problems than the company was willing to reveal.
For example, the complaint indicates that the problems Diebold faced in California
in 2004 were merely the tip of an internal structural iceberg which the company
had sought to conceal from investors when they decided to make a settlement
in the case. Investors could not know then that the problems revealed by the
California litigation in 2004 were a sign of more and deeper internal problems
to come. The settlement agreed to by Diebold in that case, the suit alleges,
was meant to keep a lid on the larger dimensions of the problems, rather than
indicating that the issues at stake had been fully resolved. Press materials
released by the company announcing the settlement -- and included in the version
of the complaint filed today -- seem to indicate otherwise to investors.
Additional facets of the company's internal structural problems were revealed
in a series of previous BRAD BLOG
articles reporting on an anonymous company insider we dubbed "DIEB-THROAT"
who alerted us to the "Cyber
Alert Warning" issued by a branch of the Dept. of Homeland Security
in August of 2004. That warning concerned the vulnerability to hackers of Diebold's
central vote tabulating software prior to last year's Presidential Election.
The election watchdog organization BlackBoxVoting.org,
who had first discovered the vulnerability, had also recently arranged for a
computer security expert to successfully hack into actual Diebold voting machines
used in Leon County, Florida without leaving any trace of the manipulation.
It was just several days after our
first report on DIEB-THROAT that stock prices plunged at the company in
September. Diebold attempted to blame their troubles, at the time, on bad weather
in the gulf which lead our insider source to
aver: "Using Hurricane Katrina is a poor excuse for bad products -
the last time this kind of deception occurred it was called Enron."
Internet news site, The RAW STORY recently
ran their own interview
with DIEB-THROAT revealing still more structural problems within the company
and its voting division. The report explained that the company was "plagued
by technical woes," even as a Diebold spokesperson claimed the 144-year
old company "has a sterling reputation in the industry."
Plaintiff Konkol, a just-retired 29-year public school employee from Central
Wisconsin first invested in Diebold in 1999. She told The
BRAD BLOG that she purchased the stock thinking, "ATM's that'd be the
way to go." She originally invested $500 which eventually grew to $1400
before falling. She is also invested in Diebold via mutual funds held by the
Wisconsin Education Union in which she is a member. Konkol, a 56-year old grandmother
of three, recently returned from two weeks of volunteering on the Gulf Coast
with several members of her Lutheran church. "We got a big group together
and we went down to the Gulf to help out in Katrina."
"I believe in churches...I believe we should practice what we're preached
to about," she told us. "I don't like it when big companies take advantage
of us little people," she said. "I can't say that I'm anti-big business...I
just want things to be fair."
It appears that Scott+Scott, the attorneys associated with the case, are just
beginning to learn about the full scope of the fraud allegedly perpetrated by
Diebold on investors. Amended complaints with additional details are expected
to be filed in the weeks and months to come. Other law firms are also expected
to file similar suits which will eventually be consolidated by the Federal District
Court hearing the case. Indeed The BRAD BLOG
has been contacted since filing our
original report on this last week, by other firms who are said to be pursuing
similar litigation against Diebold.
As one of America's largest Voting Machine Companies (along with ES&S,
they account for the tabulation of more than 80% of America's votes every election)
Diebold has been the target of Election Reform advocates for their strong partisan
support of Republican causes and candidates, a statement made prior to last
year's Presidential Election to Republican fundraisers by O'Dell that he was
committed to "delivering the state of Ohio" to George W. Bush, along
with their reluctance to include verifiable paper ballots with their voting
products and to make the source-code for their software open and available for
A recent 100+ page
GAO report, shamefully unreported
by the mainstream media, confirmed many of the Election Reform advocates concerns
about the security and vulnerability of Voting Equipment made by Diebold and
other such companies. In California, a recent mock election test revealed that
some 20% of Diebold touch-screen voting machines failed to operate as expected
after being previous decertified for similar failures and vulnerabilities. Despite
that, California's Republican Sec. of State Bruce McPherson remarkably is considering
re-certifying those same machines in the state which Diebold has described as
America's "largest voting market."
Diebold was one of seven major American Voting Machine companies named in Velvet
for Democracy" campaign launched on Presidents' Day last February.
The campaign demanded accountability and openness by the Voting Machine Companies
in what Velvet Revolution deemed a "patriotic duty" to "ensure
free, fair and transparent elections" by the private companies entrusted
with running our sacred public democracy. The BRAD
BLOG is a co-founder of VelvetRevolution.us.
Konkol's complaint as filed today demands "a trial by jury."
The BRAD BLOG will of course, compile
an extensive, accurate and verifiable paper trail in regards to this story as
it continues to unfold...
UPDATE Scott+Scott, LLC releases news of the case filing in
a press release