Manufacturing CEO Seeks Distance From Man Convicted in Ponzi

27 Oct 2015 | Author: | No comments yet »

Johnson Controls CEO speaks out about scandal, says he barely knew con man.

MILWAUKEE — The CEO of manufacturer Johnson Controls Inc. has had a turbulent two-year tenure: He was docked $1 million after an affair with a consultant, went through a contentious and high-profile divorce, and most recently is answering questions about why he gave millions to a man convicted in a $50 million Ponzi scheme. The Johnson Controls board of directors said chief executive officer Alex Molinaroli’s involvement with a Ponzi schemer has no relevance to the company. Alex Molinaroli has meanwhile sought to shepherd the company, which has annual revenues of $43 billion, through a massive restructuring that involves spinning off about half its operations into a new business.

In an Oct. 22 report, the Milwaukee Journal Sentinel detailed the relationship between Molinaroli and Joseph Zada, who was convicted Sept. 3 in a Florida federal court on 15 counts of mail fraud in connection with an alleged Ponzi scheme. Molinaroli has portrayed himself as the victim of a swindler, and told The Associated Press on Monday there’s no inconsistency in his personal financial errors — losing millions in a fraud — and leading a company responsible for 130,000 jobs. “I take my job incredibly seriously,” he said. “I’ve worked for this company for 33 years, and it’s the primary thing that I do. Under his leadership the company has delivered strong operating results while simultaneously undergoing a strategic transformation designed to drive future growth.” Separately, a JCI spokesman said Molinaroli still is scheduled to participate in the company’s fourth-quarter conference call Thursday.

Although Molinaroli said he did not know how much money he had given Zada since 2006, a federal prosecutor and court documents put the tab at millions. From 1998 to 2009, Zada allegedly took funds from at least 20 investors — including former Detroit Red Wings hockey star Sergei Fedorov — but never invested the money. Citing a transcript of Zada’s bond hearing, the Journal Sentinel quoted federal prosecutors who said Molinaroli offered to help Zada pay $20 million in restitution to his victims.

According to federal prosecutors and court records, Zada told investors he was putting their money in oil and currency trading through a secret European board. Molinaroli was a victim of Zada’s scheme, not an accomplice,” added Fraser Engerman, director of global media relations for the Glendale-based Johnson Controls. “He has not benefited from it in any way. While Zada may have utilized some funds from Molinaroli’s loans to support his legal defense, it was always Molinaroli’s hope that this would ultimately facilitate repayments to all victims – including himself.

When Zada’s scheme collapsed and lawsuits and criminal charges were filed against him, Molinaroli continued to provide Zada with money and housing, even though Molinaroli contends he does not know Zada well. Zada also “hosted extravagant parties, drove expensive luxury vehicles, and maintained expensive homes” in Florida and suburban Detroit, the statement said. Federal prosecutors said Molinaroli has paid Zada’s legal fees, bought a Michigan mansion for Zada to live in and even offered to pay up to $20 million restitution for Zada. Molinaroli has launched a major corporate reorganization of JCI, and his entanglement with Zada could be a distraction for him and the company at a time when investors are assessing its strategy.

Attorney’s Office press release indicated other victims as an internationally acclaimed hockey player, a former Olympic equestrian champion, a veterinarian, a jeweler, and a pawnbroker, as well as a number of firefighters. In July, Milwaukee-based Johnson Controls announced that it would spin off its $22 billion seating and interiors unit based in Plymouth Township as it turns its focus to its other product lines: batteries and energy management for buildings. Molinaroli’s investment and continued financial support for Zada has put him in the middle of his second controversy since taking the reins at Johnson Controls in 2013.

When pressed to return the investment money, Zada claimed he was awaiting a billion dollar inheritance from a member of the royal family of Saudi Arabia, but the inheritance never materialized. Molinaroli said “the loans that I gave him moved from investments to paying for defense.” But, he said, “I provided no restitution,” adding that if anything he wanted to make sure he would get paid back himself. As soon as the market comes back at right time, I’ll sell it.” His wife of nearly 30 years, Patsy Molinaroli, filed for the split after she became aware of her husband’s relationship with the company consultant. Molinaroli said Zada’s lawyer asked him if he would help pay restitution. “They asked for me to help and I said only if I’m getting restitution,” Molinaroli said, adding that the subject was then dropped.

Nicholas Pearce, a professor with Northwestern University’s Kellogg School of Management, said “nobody’s perfect, no one is flawless, but with executives — especially chief executives — the lines are very, very blurry between” personal and professional conduct. “Trust is there even today because he’s still CEO of the company,” Morningstar strategist Dave Whiston said. “Inherently, board members and shareholders are trusting him to make the right decisions.” While the high-profile embarrassments are “disappointing to see, and I’m tired of reading about scandals with the JCI CEO,” he said, he doesn’t think it matters “until there’s evidence that it’s impacting his ability to run the company or that it’s hurting margins.” Records from his recent divorce were subpoenaed by federal authorities this year as they were preparing their case against Zada, according to documents filed in Waukesha County Circuit Court. ■ Molinaroli confirmed that he had paid legal fees for Zada, though he said the money was given to Zada as loans. Patsy Molinaroli voiced several allegations about her ex-husband on Friday, only to say on Saturday that she lied and made up her claims because she was mad at Alex Molinaroli. Still, she said she hoped her ex-husband survived the Zada affair, in part because the couple’s divorce settlement calls for her to receive half of his gross pay — a figure she said equaled about $53,000 a month.

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