By  on February 1, 2006

BOSTON — Former Wal-Mart vice chairman Thomas Coughlin, who was second-in-command of the world's largest retailer and a friend of founder Sam Walton, pleaded guilty Tuesday to five counts of federal wire fraud and one count of tax evasion in the theft of as much as $500,000 in company funds.

In a dramatic conclusion to the case, Coughlin admitted before U.S. District Judge Robert T. Dawson in Fort Smith, Ark., that he had a subordinate, former director of operations Robert E. Hey Jr., prepare phony expense reports and third-party invoices for a fraud that Wal-Mart said took place over a six-year period. Hey pleaded guilty to wire fraud and tax evasion in November and agreed to cooperate with prosecutors.

Coughlin, 57, had maintained his innocence for months, claiming the reimbursements were part of a secret, company-sanctioned scheme to spy on union organizers. Bentonville, Ark.-based Wal-Mart, which opposes unions, denied the charges.

His fall is all the more stunning because he had once been positioned for Wal-Mart's top job and was close to the Walton family. When Coughlin retired in December 2004, The Walton Family Foundation and the Wal-Mart/Sam's Club Foundation together donated $4 million to name a new Bentonville Public Library after Coughlin and his wife, Cindy.

The plea agreement was sealed, but the Arkansas Democrat-Gazette reported that it contained a proposed deal for Coughlin to serve a 27-month prison sentence. Under federal sentencing guidelines, Coughlin faces a maximum of 28 years in prison and $1.35 million in fines. He is free on bail.

Wal-Mart aggressively pursued the case against Coughlin, turning over evidence against him to a grand jury last March and filing suit to recover money paid to Coughlin as part of his $10 million retirement package.

"This whole episode has been embarrassing and painful to us as a company and as individuals," said Wal-Mart spokeswoman Mona Williams. "Someone we expected to operate with the highest integrity let us down in a very public way."

Coughlin issued a statement through his lawyers saying he "accepted responsibility for serious personal mistakes in judgment."

Among other thefts, Coughlin had Hey prepare false invoices to cover care of his hunting dogs ($700), fees for a private hunting lease in Texas ($6,500) and upgrades to a 1999 Ford pickup ($2,695).At Coughlin's request, Hey also obtained company gift cards, in denominations of $100 and $200, and gave them to Coughlin for personal use. Coughlin bought guns, vodka, a Polish sausage and a Celine Dion CD, according to Hey's plea agreement. Coughlin also used Wal-Mart stores as his personal commissary, requesting that Hey get Sam's Club to provide his son with a laptop and printer as a graduation gift.

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