Motorola: Former CFO Alleges Misstated Internal Forecasts

In court documents, Paul Liska alleges the company's projections for its mobile-phone business were in error and he was unlawfully fired

The curious case of Paul Liska's departure as Motorola's (MOT) chief financial officer just became more bizarre. In court documents supplied to BusinessWeek by Cook County (Ill.) court officials, Liska details differences with his former employer, alleging that the Schaumburg (Ill.)-based cell-phone maker repeatedly misrepresented the financial performance of its Mobile Devices unit and that he was unlawfully dismissed.

In a complaint filed in late February in Cook County Circuit Court and held under seal by Judge Allen S. Goldberg until Apr. 9, Liska says he became increasingly alarmed over what he considers misstatements of the division's performance. He also alleges that he was unlawfully fired when he brought his concerns to the attention of the board. The documents, along with Motorola's response, depict an increasingly acrimonious relationship between Liska and Motorola's management against a backdrop of worsening financial performance in what was once its flagship business.

During the fourth quarter of 2008, Liska began to "develop concerns that the executives within the Mobile Devices Business were, intentionally or recklessly, materially misstating its 2009 forecasts and strategic plan," according to the filing. In his view, the forecasts were "based on inaccurate or unsupportable financial assumptions." Liska, the complaint says, warned Motorola's board of directors about the "continual forecasting errors," saying that they would have "a significant deleterious impact on Motorola's credit ratings and relationships, particularly if Mobile Devices' actual results continued to fall well short of its actual forecasts."

Whistleblower Claim

In the complaint, Liska alleges "retaliatory discharge," legalese for a whistleblower lawsuit, saying his firing "violated mandated policy that favors full disclosure, truthfulness and accuracy in financial reports." The lawsuit also alleges a breach of contract; Liska, who had been hired in March 2008, says he has not received the severance pay he is owed. Liska is demanding a jury trial.

In a response filed with the court in late March and cited by the Chicago Tribune, Motorola called Liska a "treacherous officer" who concocted a "scheme designed to portray himself as a whistleblower and demand millions in return for his silence." Liska's departure was announced publicly on Feb. 3. Company officials, after analyzing the events preceding the exit, decided on Feb. 19 to terminate him for cause due to "serious misconduct and incompetence," according to Motorola's filing, which could not immediately be obtained by BusinessWeek.

According to Liska's account of the events, Motorola co-CEO Greg Brown dismissed Liska on Jan. 29 and announced his exit on Feb. 3 during a quarterly earnings call. But it was in an SEC filing that Motorola officially terminated him with cause due to "serious misconduct and incompetence." Liska claims the 16-day lag from Feb. 3 to Feb. 19 gave Motorola's lawyers enough time "to concoct the false and malicious story" and said the company was trying to "destroy his reputation in retaliation for raising legitimate concerns" about Motorola's hobbled cell-phone division.

Motorola's cell-phone business has been buffeted by a lack of devices that resonate with users and a loss of market share to competitors. Motorola tried to sell the division but failed to find a buyer and now is considering spinning it off. Motorola spokesman Rusty Brashear said the company can't comment beyond what's in the court documents.

Challenged Assumptions

Liska's filing describes in detail Liska's concerns about forecasting by the phone unit. For example, in a 90-day period during the fall of 2008, "Mobile Devices' internal forecasts for 2009 radically changed, with projected unit volume down 40 million units (40%) [and] sales down $7 billion (47%)." Furthermore, the complaint states, Liska was worried because the phone unit had not provided him or Motorola's board a full 2009 business plan by the time of a Dec. 15 board meeting.

Liska says he made attempts to discuss the situation with co-CEO and Mobile Devices chief Sanjay Jha, but that Jha did not respond. On Jan. 23, the complaint states, Liska received a presentation containing financial forecasts and summarizing Mobile Devices' 2009 business plan. The plan was to be presented to the board on Jan. 29 and to credit rating agencies, according to the document. After reviewing the presentation, Liska concluded that the forecasts "were based upon unsupportable assumptions and ignored important facts known to both [Jha and co-CEO Greg Brown]."

The suit says that these forecasts were based on "assumptions that Motorola's co-CEOs knew were materially incorrect and that neither Jha nor Brown had disclosed these inaccuracies to the Board." If Motorola were actually to present the material to rating agencies and the public, it would "lead to the continued deterioration of Motorola's credit and, when shown to be unsupportable and/or misleading, to the possible ruin of the entire company."

A Hornets' Nest

After Motorola shared its guidance with Wall Street during its first-quarter conference call on Feb. 3, several analysts were puzzled by earnings-per-share guidance of a loss of 10¢ to 12¢, several cents below what the Street had been expecting. "The guidance seems to indicate [Motorola] either expects massive additional share loss in the first quarter or very weak revenues and margins across the board from the other segments," one analyst wrote.

Liska alleges in his complaint that on Jan. 28, a few days before the quarterly conference call, he presented his concerns about the forecasting to the board audit committee. The committee went into executive session without Liska present. About 45 minutes later, one of the committee members, John White, informed Liska that "you sure did poke a stick into the hornets' nest." The next day, Jan. 29, Liska was kept out of the board meeting, according to the complaint, and at "approximately 4 p.m., Greg Brown informed Liska that he was being replaced as CFO." When Liska asked why, the complaint says, Brown responded: "It does not matter, it has been decided that we are making a change."

On Feb. 3, when Motorola announced his departure, Brown said that Liska had helped get a lot of "heavy lifting done" in preparation for the sale of the cell-phone business, but that the "business environment's changed and given the environmental changes, we thought the change [of CFO] was appropriate."

In an interview with BusinessWeek on Feb. 3, Brown said Liska was "helpful in driving costs out of the business and working with the CFOs of the business units." Brown added he and co-CEO Jha "are both united in that we want the individual business franchises to be as self-sufficient and independent as possible. We are moving more authority into individual businesses."

As Brown concluded, Jha jumped in to say: "There were no financial or ethical issues with relation to our numbers or accounting or books or any of that. People have that concern, but there are not financial issues at all."

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