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Investors Accuse Conseco of Fraud
By Tom Davies   Associated Press
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INDIANAPOLIS — Two pension funds have filed a lawsuit accusing Conseco Inc. of falsifying financial records to inflate securities' prices.

The lawsuit, which seeks class-action status, claims investors lost millions of dollars because of the alleged scheme, whereby the company manipulated loan records to lower its loan delinquency rates. They scheme, the lawsuit says, was orchestrated by Steve Hilbert, Conseco's former chief executive officer.

Conseco's new CEO said the allegations, made against former executives, are "wild" and unsupported by the facts.

The lawsuit, originally filed last year, was amended last week. It was filed by the Anchorage Police and Fire Retirement System and the State of Louisiana Firefighters' Retirement System.

Because of that manipulation, the lawsuit alleges, investors were mislead by false company information into buying Conseco securities at "artificially inflated prices."

Conseco offered investors $2.3 billion in securities between April 1999 and April 2000 that were derived from loans made to U.S. consumers by Conseco Finance. The Conseco unit consists largely of the former Green Tree Financial Corp., a lender Conseco bought for $6 billion.

The lawsuit says that during 1999 and early 2000 executives directed collection officers at Conseco Finance's Tempe, Ariz., office to change the delinquencies on accounts — a process called "re-aging" — in order to reach a predetermined percentage.

Hilbert traveled to Tempe to "oversee the doctoring of accounts as they were being changed on Conseco's computer screens. ... The 're-aging' process would take place during the last seven days of each month and often become around-the-clock efforts during the final two days," the lawsuit states.

Hilbert and chief financial officer Rollin M. Dick, who also is named in the lawsuit, resigned in April after consistent financial troubles at Conseco, whose stock dropped to less than one-tenth of its high in 1998.

A statement Wednesday from Conseco Chief Executive Officer Gary Wendt, a former GE executive who was named in June to succeed Hilbert, said the lawsuit was one of the last legacy issues from his predecessor.

Wendt said the allegations "are so wild as to be, literally, fantastic."

The lawsuit claims Hilbert personally directed the alleged manipulation, but Conseco spokesman Mark Lubbers said the company's collections manager in Tempe denies ever meeting Hilbert.

The lawsuit alleges investors suffered loses in five securities, only one of which trades regularly. That trust-preferred security closed Wednesday at $19.65. Its 52-week high is $22.25.

The lawsuit does not specify a damage amount. Daniel Berger, the lead lawyer for the plaintiffs, did not return a phone message to his New York office Wednesday.

Hilbert did not return a message seeking comment.

Conseco's stock fell as low as $4.50 per share last year. The stock price has since rebounded, reaching $18.60 last month and closing Wednesday at $14.20.

The company has sold five of Conseco Finance's eight units in recent months to restructure the troubled division, Lubbers said.

"We now have a company that produces cash for the parent and with much slower growth produces very handsome earnings growth," Lubbers said.

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