Chenowth hurls charges as prison time looms
Dec 24, 2001 – Nick Chenowth is headed to prison.
If you ask him why, he’ll say it’s because he’s a victim — of circumstance, of his own success, and above all, of a vendetta by a lawyer who once raced with him on Team EDS.
That lawyer, Chris Carlson, gives a shorter, simpler answer. EDS’s former Global Sports marketing manager “is a criminal,” says Carlson, a litigator for Electronic Data Systems, “and the record shows that.”
Indeed, there is little the former teammates now agree upon, except that on January 11, Chenowth enters a federal prison to start a 27-month sentence for mail and wire fraud; that he owes his former employer nearly $1.3 million; and that the bulk of that money was salary paid to Olympic gold medalist Marty Nothstein.
Reversal of fortune
Chenowth pleaded guilty to the federal mail- and wire-fraud charges in June. Carlson told VeloNews the plea was an appropriate outcome to a case in which Chenowth admitted falsifying expense reports and receipts for more than $370,000 in non-existent services and equipment, and routing funds to his own bank account.
Chenowth, on the other hand, recalls his plea “as the point where — after being fired, sued, slandered and driven to bankruptcy — Chris and EDS got their final pound of flesh out of me and forced me to cut my losses (and) stop the fight….”
“I ran a top-notch international sports marketing program for them,” Chenowth said of his time as director of Global Sports for the Plano, Texas-based information services company. “By the 1996 Olympics, we had a presence in Atlanta comparable to that of companies paying 20 and 30 times what we were … a big part of that was Marty.
“I’m now bankrupt and going to jail for things that people were applauding me for five years ago. I’m going to jail for paying Marty Nothstein a fraction of what he was worth. I’m at a point I could never have imagined when this whole thing started.”
Marketing on a budget
The whole thing started simply enough in 1988, with an EDS-sponsored bike team made up of two riders, one of whom was Chenowth, an avid track cyclist in charge of EDS’s Global Sports division. EDS was gearing up for the company’s presence at the 1992 Olympics in Barcelona and professional soccer’s 1994 World Cup, slated for the United States. Both were first-time efforts for the conservative Texas firm.
“This place was pretty much run by guys in gray suits,” Chenowth said of the conservative firm, established in 1961 by Ross Perot. “They’d never even advertised, so trying to get support for a big international sports marketing effort was pretty alien. I had to start thinking of creative ways to accomplish some major goals on a small budget.”
Early on, the team simply provided an opportunity for a few serious cyclists to race while working at EDS. But after a joint effort with IBM in Barcelona, Chenowth felt that EDS could buy a presence at the 1996 Atlanta Games more cheaply by sponsoring an Olympic-affiliated governing body, rather than the U.S. Olympic Committee.
For its part, IBM no longer wished to share the spotlight with a competitor and was preparing to sponsor the USOC — and its affiliates — for the four years leading up to and including the Atlanta Olympics.
“For that, IBM was spending upwards of $50 million a year,” Chenowth said. “We still wanted a presence, and USA Cycling and especially (former CEO) Jerry Lace and then Lisa Voight gave us the ‘in’ that we needed.”
In January 1993, Chenowth and EDS negotiated a four-year sponsorship package. This was made up of direct cash payments to USA Cycling of approximately $200,000 annually, supplemented by up to $1 million a year of “in kind” contributions, which included shifting several EDS employees to Colorado Springs, where they helped design hardware and software systems for USA Cycling. As a result, USA Cycling was one of the only national governing bodies not covered by the USOC’s deal with IBM.
Chenowth saw it as a coup, a bit of guerilla marketing that “really got under the skin of IBM.” It also had the enthusiastic support of EDS chairman Les Alberthal. Indeed, with Alberthal’s support, the sponsorship was renewed early, extending the deal through 2000.
The relationship was a good one, Chenowth said. “We had Dick Wiles up there — his office was right next to Lisa’s … we provided help that extended beyond information services. Dick offered a lot of business advice, and Lisa was on the phone with me at least once a week.”
It was during one of those regular conversations in late 1993, Chenowth said, that Voight approached him for help solving a potentially serious problem.
“It was becoming pretty apparent that Marty (Nothstein) was probably one of the country’s best hopes for a medal in cycling,” Chenowth said. “It was also becoming pretty obvious that Marty was not happy being part of the national team. He didn’t like the coaching staff, he didn’t like Lisa, he didn’t like USA Cycling.”
And Nothstein knew that he could make “a pretty healthy salary” doing what his personal coach, Gibby Hatton did, according to Chenowth — going to Japan and racing keirin.
“He wanted more independence,” said Chenowth, “and he wanted more money.”
Chenowth said he suggested using some of EDS’s sponsorship funds to supplement payments to Nothstein, a proposal that Voight said “wouldn’t fly with her board.” Instead, Chenowth said he and Voight agreed that EDS would hire the sprinter for an entry-level public-relations position that, on paper, paid $20,000 a year.
“That, obviously, isn’t anywhere near what an Olympic-caliber athlete — especially, a potential medal winner — is worth,” Chenowth said. “We had to come up with more, so what I did was carve out a few of those dollars (originally intended for USA Cycling) and keep them back on my side … which enabled me to pay Marty.”
Chenowth began filing invoices purportedly from outside vendors — initially an advertising agency and later a bicycle supplier — between $101,000 and $213,000 a year. All of that was used to supplement Nothstein’s salary. In all, Chenowth paid Nothstein more than $618,000 between February 1995 and February 1999, using compensation for expenses that were never actually incurred. It was a deal that was not repeated for other EDS riders, who included Olympians Erin Hartwell and Rebecca Twigg.
“We had to keep the whole thing confidential,” Chenowth said. “I mean, Lisa knew about it, my supervisor — Vicki Yacovani — knew about it, but it’s not the sort of thing you go around putting into the company newsletter.”
Voight denies ever having discussed such an arrangement, adding that she would have had no objection to Nothstein racing in Japan, especially since it would not have kept him out of the 1996 Olympics.
Alberthal said in an affidavit that he believed Nothstein was only paid “within EDS’s standard benefits range for the position,” — that $20,000 a year — adding that he would never have approved of paying the cyclist “by means of fraudulent invoices….”
Yacovani can’t confirm or deny Chenowth’s claims. She died of leukemia in 1998. And Nothstein isn’t talking. Several calls to the sprinter were not returned.
“It really doesn’t matter,” Carlson said in December. “The issue isn’t Marty. He didn’t do anything wrong. Nick did. He had no right, no authorization to make that sort of arrangement.”
In his defense, Chenowth points to the fact that EDS paid Nothstein a final $250,000 several months after Chenowth had been fired.
That’s not the point, Carlson counters. “Chenowth did not have actual authority to enter into the undisclosed, unauthorized contract, (but) Nothstein very likely would have been able to enforce the contract (in court). EDS settled for a lesser amount than (that) owed on the contract.”
The company team
Soon after its formation, Chenowth began adding to the EDS team roster, including Carlson, then a young lawyer who Chenowth said was “floundering at his job because he spent way too much time training and racing his bike.” Both men agree that Chenowth arranged for Carlson to join EDS’s legal affairs division in 1992, a job that allowed him time for training and competition … and would eventually put the two on a direct collision course.
The first sign of trouble, Chenowth claims, occurred during a meeting in late 1996.
“Chris came to me after the Olympics — where both Erin and Marty had taken silver medals — and made it damn’ clear that, one, he knew how much Marty was actually making, and two, that he wanted to be paid the same amount,” Chenowth said. “I couldn’t believe it. First off, I told him it was not any of his business, and then I made it clear that he sure wasn’t the kind of rider Marty was and there was no way I was going to support that. He didn’t take it well.”
Carlson denies the charge. “I never knew what Marty made or how he was being paid until after Nick was fired and, as part of my job, I (was told to look) into the finances of his department,” he said.
None of the team’s riders contacted for this story could or would corroborate Chenowth’s charge. One-time EDS systems engineer and team rider Michael Buttrey pulled no punches. “Nick’s full of it,” Buttrey said. “It’s a bald faced lie.”
Chenowth points to another incident, in which the two got into a dispute over the details of an accident at the EDS Superdrome involving Carlson’s bike and an inexperienced rider, that marked the low-point of their relationship. Again, the conversaton took place in a private meeting and is impossible to verify, beyond that the rider in question was injured, sued EDS and eventually settled out of court. “He issued a threat,” Chenowth said of the meeting.
“Pure fiction,” Carslon responds.
Parts is parts, but where are receipts for those parts?
Pretty much anyone who encountered the EDS squad in the 1990s saw the team as “riding the gravy train.” They traveled well, always had new uniforms and even their masters racers (the core of the team) were equipped better than most European pros.
Chenowth contends that the team was an integral part of the EDS marketing effort. With Nothstein, Hartwell and Twigg on the squad, it did serve that purpose. But EDS was also a great vehicle for employees like Carlson, Chenowth and others to race and be supported in a fashion that probably would have been impossible had they tried to race for a living.In an interview in December, Chenowth told VeloNews that he saw it as his mission to field a team “that looked like it had a $2 million budget on less than $300,000 a year.”
Toward that end, he began what he now admits was a “very sloppy, way-too-casual” effort to supplement the team’s finances — once again, he says, with Yacovani’s blessing.
In 1994, Chenowth began submitting a series of handwritten receipts and expense reports to EDS corporate services for equipment and services that were never delivered to EDS, the team or anyone else. The receipts generated more than $370,000 in checks payable to Chenowth.
“It was more than sloppy, it was criminal. He deposited all of that into his personal account,” Carlson said, adding that Chenowth was driving a Lamborghini at the time, which was later replaced by a series of Ferraris.
It’s a point Chenowth doesn’t deny, though he says he spent the funds in question on the team. “I bought equipment — tires, wheels, bikes — both before and after we got a sponsorship from Corima,” he said. “But (Yacovani) approved that, too. I wouldn’t have done that without approval.”
Carlson said that Chenowth’s attempt to cover a misdeed by “pointing a finger to the one person who can’t corroborate his story is despicable.”
Change of leadership
However sloppy, Chenowth says that his “creative funding” of the team led to the accumulation of “a warehouse full of equipment, including bikes, wheels, jerseys, tires … everything.” Carlson acknowledges the warehouse, but adds “we know what was done with the money Nick stole and it wasn’t used to fill that warehouse with bike parts.”
The scheme probably would have continued had it not been for a slide in EDS stock and Alberthal’s subsequent replacement by Dick Brown, a CEO with a hard reputation as a cost cutter. At first, Chenowth assumed the change would simply trigger a contraction in his budget.
And indeed, those cuts came quickly. EDS quickly made it clear that the USA Cycling deal would not be renewed. The company put an end to its support of the recently built Superdrome, spending more than $1 million to withdraw from its contract. The team was disbanded, and Nothstein let go. And then an EDS employee approached the legal department with allegations regarding the team’s finances. Carlson and another attorney were assigned to the case. Chenowth had no answers. In April 1999 he was fired.
But that was just the start.
“It took just five minutes of looking to realize something was wrong,” Carlson told VeloNews. “There were bizarre, downright comical, receipts and claims in there … equipment that you couldn’t buy or just didn’t exist. 130-centimeter cranks?”
In May, EDS filed a $372,000 civil suit in state district court in Collin County, Texas, seeking the return of funds Chenowth said were tied up in equipment that he could no longer access. “They had possession of all of it, including $60,000 worth of my own stuff,” said Chenowth.
A few months later, EDS upped the ante to $700,000, and Chenowth sought protection in U.S. Bankruptcy Court in Dallas. The EDS demand eventually hit $1.3 million.
Throughout the spring and early summer of 2000, Chenowth, EDS and its insurance company battled over claims, counterclaims and details of who owned what and who might have authorized purchases.
“I was screwed,” Chenowth said. “There was no paper trail to speak of, and what there was happened to be in the possession of Chris Carlson. I was out of money. I couldn’t even afford a lawyer anymore. I had to try and settle.”
In an August meeting, Chenowth said Carlson made it clear that “there would be serious consequences if I didn’t accept responsibility for the full $1.3 million.” He did, but then under advice from a family attorney, withdrew the agreement and offered to settle for $710,000, “with the stipulation that they then leave me the hell alone.”
Carlson points out that a criminal investigation was already proceeding on its own and in March of 2001 a federal grand jury in Dallas indicted Chenowth on charges that he misappropriated $372,000.
In June, “after figuring out that this ($20 billion) company was never, never going to let up,” Chenowth said he decided to cut his losses and entered a guilty plea.
Remarkably, at his November sentencing hearing, Carlson and EDS urged the judge to consider more than the figure outlined in the original indictment and again raised the issue of Nothstein’s salary. The judge concurred, and after sentencing Chenowth to 27 months, ordered him to pay restitution totaling nearly $1.3 million.
“You could hold a gun to my head and I couldn’t exactly tell you what that all includes,” Chenowth said. “A lot of it is sitting in EDS’s warehouse, but most went to Marty, and he deserved every penny of it. I’m going to jail for that.”
Carlson, for one, sees it as a fair resolution to a case of “plain and simple theft.”
“I find it remarkable that he is still out there proclaiming his innocence after making an impassioned speech to the judge, acknowledging his guilt, expressing his sorrow,” Carlson said. “Nick is a proud guy. I guess he’s doing his best to save face.”
Chenowth sees things otherwise. “I am simply pointing out facts that were never allowed to be made public by EDS,” he said. “I have long since lost the feeling of being proud. I am a convicted felon.”
That’s another point both men can agree upon.
Editor’s Note: At best, a news story is just a summary of a few of the facts that make up a complete picture. To assist readers in gaining additional insight into the case of EDS versus Nick Chenowth, VeloNews is offering access to several relevant documents related to the matter.
Most of these documents are in the form of depositions taken during the the original civil suit filed by EDS against Chenowth (in District court in COLLIN COUNTY, TEXAS) or the ensuing bankruptcy case (U.S. Bankruptcy Court, in the City of Dallas), which resulted from EDS’s $1.3 million claim against Chenowth. All of them are in PDF format and users will need a recent version of Adobe’s Acrobat reader to access these files.
D’Rinda Taylor was the EDS employee responsible for processing the majority of Chenowth’s expense reports. She was deposed on May 20, 1999.
Chenowth’s fiancée (now wife) Christi Lynn Simmons, was deposed on June 14, 1999.
Pierre Martin, president and CEO of the French bicycle and component manufacturer Corima was deposed on July 26, 1999.
Timothy Michael Goodwin, former general manager of Richardson Bike Mart, was deposed on August 9, 1999.
Brett Kipling Hydrick, the owner and operator of bicycle and component supplier Texas Racing Works, was deposed on August 12, 1999.
Former EDS CEO Les Alberthal was deposed early in the case on August 26, 1999.
Former EDS vice chairman, Gary J. Fernandes, was deposed on September 10, 1999.
Other documents: EDS attorney Chris Carlson sent Chenowth a letter in October of 1998 resigning from the cycling team.
At Chenowth’s sentencing hearing on November 9, 2001, Carlson submitted the following statement to U.S. District Court judge Paul Brown before sentence was imposed in the case.