Fired Wal-Mart Execs Named in Texas Probe

Two former executives of Wal-Mart Stores Inc. have been named in documents generated during a criminal fraud investigation in Texas, but neither man was a suspect as of March 21.

Kenneth Reese, former director of operations for Wal-Mart’s 1,500 Tire & Lube Express locations nationwide, and Terry Pharr, a former senior vice president, were fired by Wal-Mart in December along with five other employees for violating “established company rules.”

Reese and Pharr are mentioned in documents pertaining to an ongoing investigation, according to a letter from Pamela Smith, senior general counsel for the Texas Department of Public Safety.

Smith wrote the March 21 letter to Texas Attorney General Greg Abbott requesting an opinion pertaining to the state’s open records law. The letter was in response to a March 8 request by the Northwest Arkansas Business Journal for a copy of any police reports that mention Reese or Pharr.

“Since the information responsive to this request deals with an ongoing criminal investigation, the department believes the requested information is excepted from release … ” Smith wrote to the attorney general.

“The Texas Rangers are conducting a broad investigation into allegations of persons making false statements to obtain property or credit, and securing execution of document by deception,” Smith wrote. “Although the individuals … are named in the documents created during the course of this investigation, they have not been named as suspects at this time.”

The Texas Ranger Division is the investigative arm of the state police.

The two charges mentioned by Smith — persons making false statements to obtain property or credit, and securing execution of document by deception — fall under Chapter 32 of the Texas Penal Code. That chapter deals with fraud. Penalties upon conviction for those two charges vary depending on the amount of money in question. If the amount is more than $1,500 for either charge, the crime would be considered a felony and possibly punishable by imprisonment.

The attorney general has 45 days from the date of the request to issue an opinion on the matter.

(Pharr’s name came up Friday in story by the Wall Street Journal. The story, summarized here, says that former Wal-Mart vice chairman Thomas M. Coughlin was claiming reimbursement for personal expenses as an indirect way to cover the cost of clandestine antiunion activities. After an internal investigation, Wal-Mart asked for Coughlin’s resignation and fired four others. More on the Coughlin case below.)

Texas Ties

The Business Journal made a similar request in December and was informed that no report existed at that time.

“The Texas Rangers have advised that an investigation is being conducted but no reports have been written,” Allen W. Smiley, legal assistant with the Texas DPS’ Office of General Counsel, wrote in a Dec. 18 letter to the Business Journal.

The Texas DPS didn’t give specifics about the investigation. Both Reese and Pharr are former Texas residents who later moved to Northwest Arkansas to work at Wal-Mart’s home office in Bentonville. Reese managed a Wal-Mart store in Irving, Texas, in 1998, according to minutes from an Irving City Council meeting. Pharr was the “top local executive” over grocery operations for Wal-Mart’s stores in Houston, according to a 2001 story in the Houston Chronicle.

But sources say the investigation may stem from a hunting trip to south Texas.

Wal-Mart founder Sam Walton, who died in 1992, often hunted on A.C. “Dick” Jones’ ranch near Falfurrias, Texas, and Wal-Mart executives still take regular trips there.

But Jones, who lives in Corpus Christi, Texas, said he knows of no trouble and no investigation stemming from Wal-Mart execs leasing his ranch.

“They’ve been coming down here for years,” he said. “We’ve never had any problems with them.”

Another Wal-Mart executive, Thomas M. Coughlin, leases hunting property at the Kenedy Foundation Ranch 70 miles east of Falfurrias on Baffin Bay.

“He’s about as close to a perfect lessee as I have,” said George Kostohryz, who manages the property. “They’ve never broken any rules. They’re perfect, absolutely perfect. He’s been a member for years.”

Coughlin Connection

Reese and Pharr worked for Coughlin, 55, who announced on Dec. 6 that he would retire on Jan. 24 but remain on the company’s board until the June 3 shareholders meeting in Fayetteville.

Coughlin subsequently resigned from the board under pressure on Good Friday, March 25, after an investigation into alleged unauthorized use of corporate-owned gift cards and reimbursements obtained with false information.

In a filing with the Securities and Exchange Commission, Wal-Mart said its request for Coughlin’s resignation arose from “a disagreement between Mr. Coughlin and the company” concerning the results of the investigation. Wal-Mart said the investigation concerns gift card use and reimbursements valued between $100,000 and $500,000 and Coughlin’s “response to questions concerning his knowledge of certain transactions.”

As vice chairman of the company, Coughlin was the No. 2 executive at Wal-Mart behind CEO Lee Scott. Coughlin, who had been with Wal-Mart since 1978, oversaw all U.S. Wal-Mart and Sam’s Club stores

On Dec. 15, Wal-Mart spokeswoman Mona Williams said three executives — including Pharr and Reece, although the company didn’t identify them — and four other employees had been fired but that the terminations had nothing to do with Coughlin’s departure earlier that month.

Since then, Wal-Mart said it would continue to pay Coughlin for the next two years, and Bentonville named its public library for him after receiving a $4 million donation from the Walton Family Foundation and the Wal-Mart and Sam’s Club Foundations.

After the March 25 SEC filing, Wal-Mart issued a release saying it had requested Coughlin’s resignation and then reported the results of its investigation to Bob Balfe, the U.S. Attorney for the Arkansas’ Western District, requesting that “all appropriate action be taken …”

Three other Wal-Mart employees were fired in the March round. Wal-Mart wouldn’t release their names, but the Wall Street Journal reported that one of them was Rob Hey, former vice president of merchandising systems who began his career 23 years ago stocking shelves in Wal-Mart’s Parsons, Kan., store.

In the release, Wal-Mart said Coughlin’s board ouster would have no “adverse financial impact” on the company. It said the company wouldn’t comment further.

Scott sent a letter to Wal-Mart employees on March 25 saying the company wasn’t the target of the investigation. The letter included questions employees might ask. One of them was “What will happen to Tom? Is he going to prison?” Scott’s answer: “Because the matter is now in the hands of federal prosecutors, we don’t know what the eventual outcome will be.”

At Wal-Mart’s first-ever media conference on April 5, Scott responded to a question about Coughlin by saying, “In general, what I’ve seen more than anything else is sadness … In a deal like this, there is absolutely no winner, no winner at all.”

When asked how the Coughlin firing was being taken by employees nationwide, Scott said, “Those things have a bigger impact in Northwest Arkansas and the home office … It’s the people in the home office that have time to gossip.”

In 2004, Coughlin received a salary of $983,894 and a bonus of about $2.9 million, according to Wal-Mart’s proxy statement.

Feds Hit Bentonville

A source who requested anonymity said federal investigators were in Bentonville the last week of March, apparently having picked up the investigation from where Wal-Mart’s internal auditors left off.

Violating Wal-Mart’s company policy can also mean violating U.S. law.

The feds became involved in the case of Clifford H. Pruitt Jr., who was fired from Wal-Mart after the company discovered that third-party vendors were hiring illegal immigrants to clean stores.

Pruitt, who supervised Wal-Mart stores in Florida and Georgia, was subsequently charged with mail fraud for taking $80,000 in kickbacks in 2002 from Enviro-Klean, a floor cleaning company based in Dallas.

In an argument that would probably astonish Wal-Mart’s famously restrained founder, Pruitt’s attorney said he was just trying to keep up with the luxurious lifestyles of other Wal-Mart executives and that the fraud was a one-time fit of greed.

“[He] had never been exposed to such overwhelming pressure to buy new, expensive cars and homes, keeping up with the other Wal-Mart executives,” Mary A. Kane, Pruitt’s attorney, said in a Jan. 24 motion.

Pruitt pleaded guilty in November to mail fraud in U.S. District Court in Texarkana. He faces up to 20 years in prison and as much as $250,000 in fines.

Pharr Plans Restaurant

When contacted at his home in Gentry, Pharr said he plans to open a 3,600-SF San Francisco Bread Co. restaurant in Bentonville’s new Metro Market shopping center in July.

Pharr said he hopes to open more of the restaurants but hadn’t decided when or where those would be.

On March 4, he filed with the Arkansas Secretary of State’s office to incorporate Lonesome Dove Enterprises LLC, which apparently will serve as the franchisee of San Francisco Bread Co. The small chain is based in Little Rock.

When asked about Wal-Mart, Pharr said, “I have no comment.”