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W.R. Grace Expects Indictment

Federal Charges Stem From Mine Problems

By Carrie Johnson
Washington Post Staff Writer
Saturday, November 27, 2004; Page E01

W.R. Grace & Co. disclosed yesterday that federal prosecutors were likely to indict the chemical and building material supplier during the first quarter of 2005 on charges related to environmental problems at a former mine, unless both sides strike a deal before then, according to a filing with the Securities and Exchange Commission.

Grace said it had been notified that an investigation by the U.S. attorney in Montana had entered an "advanced stage" and that criminal charges would be filed against the company "unless a resolution of this matter can be reached with the government within such a time frame."

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The company also disclosed in another set of court papers that three current employees and four former employees are the targets of a grand jury investigating possible Clean Air Act violations, obstruction of justice and conspiracy to break federal environmental laws in connection with a now closed Libby, Mont., mine. The criminal investigation has targeted people in "key management positions" in Libby and in the construction and chemical units, according to court papers filed with the bankruptcy court.

The mine produced vermiculite, a mineral used in gardening and insulation. During the 40 years Grace operated the mine until it was closed in 1990, as many as 200 people in the Libby area died from illnesses caused by a form of asbestos released in the vermiculite mining process, according to news reports. Grace is contesting a $54.5 million payment that a federal judge ordered the company to make to the Environmental Protection Agency to cover the government's cleanup costs at the site.

A spokesman for Grace, which filed for bankruptcy protection in April 2001 as billions of dollars in claims were filed by asbestos victims across the nation, did not return calls yesterday, nor did the company's lawyer in the Washington office of Kirkland & Ellis LLP.

But in a public filing with the SEC yesterday, Grace said that Montana U.S. Attorney William W. Mercer had asserted that prosecutors have "substantial evidence linking the company to the commission of a crime." Mercer declined to comment.

Grace said it could not predict whether the possible indictment would have a material impact on its financial condition. The company received permission from a Delaware bankruptcy court Nov. 15 to pay the legal costs of unnamed employees caught up in the investigation, with the understanding that Grace would be reimbursed if the workers later were judged to have broken the law. Word of the pending criminal charges comes a week after Grace chief executive Paul J. Norris, who joined the company in 1998, said he would retire in mid 2005. Norris will remain as Grace's chairman but the company's chief operating officer, Alfred E. Festa, will take over as chief executive in June.

Norris said that the executive switch would complete a long-planned transition. He added that "the businesses are in very good shape" in a news release Nov. 19.

Grace employs about 6,000 people in nearly 40 countries.

The company's stock price closed at $13.20 yesterday, down 4.56 percent.

Staff writer Michael S. Rosenwald contributed to this report.

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