The embattled manufacturing executive, who says he is a victim of the scam, has had a tough two years with several high-profile gaffes
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.
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.
Molinaroli has portrayed himself as the victim of a swindler, and told The Associated Pressthere’s no inconsistency in his personal financial errors—losing millions in a fraud—and leading a company responsible for 130,000 jobs.
Molinaroli’s link to Joseph Zada, the man convicted Sept. 3 in the Ponzi scheme, was revealed in divorce papers and in records from a federal trial in Florida, connections that were reported last week by the Milwaukee Journal-Sentinel. Zada was found guilty of running a 10-year scam that defrauded dozens of investors, including former NHL hockey star Sergei Fedorov.
Since then, Molinaroli has refuted or tried to address connections stated by a prosecutor in the court records: that Zada lived rent-free in a house in Michigan that Molinaroli owned, that Molinaroli funded Zada’s defence, and that he offered to pay $20 million restitution on Zada’s behalf.
Molinaroli said he met Zada in 2006 through his then-stepson, John Shealey, who also invested with Zada. Authorities said Zada told victims he was connected to Saudi royalty and could use these ties to bring huge returns on oil investments.
After the newspaper reported Molinaroli saying he was unsure how much money he invested with Zada, the executive said that bankruptcy documents show Zada admitted to owing him about $2.5 million. He said no Johnson Controls funds were involved.
Zada’s attorneys have not responded to messages seeking comment. Shealey could not immediately be located for comment.
When Assistant U.S. Attorney Adrienne Rabinowitz argued that Zada be held without bond, she said he told authorities Molinaroli had given him “millions of dollars” since 2006 that paid for his defence and that Molinaroli said he would pay about $20 million in restitution in the case.
Molinaroli said “the loans that I gave him moved from investments to paying for defence.” But, he said, “I provided no restitution,” adding that if anything he wanted to make sure he would get paid back himself.
Zada did live rent-free in a home Molinaroli owned. “I bought that house. It was going into foreclosure, and that was a good way to recover some of my losses. It was his home,” Molinaroli said. “I could have rented it out, I just didn’t. As soon as the market comes back at right time, I’ll sell it.”
Under a settlement from Molinaroli’s divorce, he is entitled to any payments he receives from his loan to Zada.
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. During a court proceeding related to the affair, Patsy Molinaroli acknowledged smashing up her home with a baseball bat. She also said, according a court transcript, “I had my gun, and I shot a mirror and a TV.”
Johnson Controls’ board of directors concluded there was no conflict of interest in Molinaroli’s relationship with the consultant, but terminated her contract and cut Molinaroli’s bonus pay by 20 per cent, about $1 million, according to a Securities and Exchange Commission filing, saying he had committed an ethics violation by not disclosing the relationship sooner.
Johnson Controls spokesman Fraser Engerman said in a statement last week that Molinaroli was “a victim of Zada’s scheme, not an accomplice.”
“While Zada may have utilized some funds from Molinaroli’s loans to support his legal defence, it was always Molinaroli’s hope that this would ultimately facilitate repayments to all victims, including himself,” Engerman wrote.
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.
The company’s board has continually backed Molinaroli, which one analyst said is a significant sign.
“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.”