During the year, they monitored the company’s actual operating results and compared them to the quarterly targets set in the budget, the complaint says. To reduce ex-penses and inflate earnings artificially, defendants then primarily used “ top- level adjustments” to con-form the company’s actual results to the predeter-mined earnings targets, according to the complaint. The inflated earnings of prior periods then became the floor for future manipulations. The consequences, however, created what Hau referred to as a “ one- off” problem. To sustain the scheme, earnings fraudu-lently achieved in one period had to be replaced in the next. Defendants allegedly concealed their scheme in a variety of ways. They are charged with making false and misleading statements about the company’s ac-counting practices, financial condition, and future prospects in filings with the Commission, reports to shareholders, and press releases. They are also are charged with using accounting manipulations known as “ netting” and “ geography” to make reported re-sults appear better than they actually were and avoid public scrutiny. Defendants allegedly used netting to eliminate approximately $ 490 million in current pe-riod operating expenses and accumulated prior pe-riod accounting misstatements by offsetting them against unrelated one- time gains on the sale or ex-change of assets. They are charged with using geog-raphy entries to move tens of millions of dollars between various line items on the company’s income statement to, in Koenig’s words, “ make the financials look the way we want to show them.” Defendants were allegedly aided in their fraud by the company’s long- time auditor, Arthur Andersen LLP, which repeatedly issued unqualified audit re-ports on the company’s materially false and mislead-ing annual financial statements. At the outset of the fraud, management capped Andersen’s audit fees and advised the Andersen engagement partner that the firm could earn additional fees through “ special work.” Andersen nevertheless identified the com-pany’s improper accounting practices and quantified much of the impact of those practices on the com-pany’s financial statements. Andersen annually pre-sented company management with what it called Proposed Adjusting Journal Entries ( PAJEs) to cor-rect errors that understated expenses and overstated earnings in the company’s financial statements. Management consistently refused to make the ad-justments called for by the PAJEs, according to the complaint. Instead, defendants secretly entered into an agreement with Andersen fraudulently to write off the accumulated errors over periods of up to ten years and to change the underlying accounting prac-tices, but to do so only in future periods, the com-plaint charges. The signed, four- page agreement, known as the Summary of Action Steps ( attached to the Commission’s complaint), identified improper ac-counting practices that went to the core of the com-pany’s operations and prescribed 32 “ must do” steps for the company to follow to change those practices. The Action Steps thus constituted an agreement be-tween the company and its outside auditor to cover up past frauds by committing additional frauds in the future, the complaint charges. Defendants could not even comply with the Action Steps agreement, according to the complaint. Writing off the errors and changing the underlying account-ing practices as prescribed in the agreement would have prevented the company from meeting earnings targets and defendants from enriching themselves, the complaint says. Defendants’ scheme eventually unraveled. In mid- July 1997, a new CEO ordered a review of the com-pany’s accounting practices. That review ultimately led to the restatement of the company’s financial statements for 1992 through the third quarter of 1997. When the company filed its restated financial statements in February 1998, the company acknowl-edged that it had misstated its pre- tax earnings by approximately $ 1.7 billion. At the time, the restate-ment was the largest in corporate history. As news of the company’s overstatement of earn-ings became public, Waste Management’s shareholders ( other than the defendants who sold company stock and thus avoided losses) lost more than $ 6 billion in the market value of their investments when the stock price plummeted by more than 33 percent.