JCI boss says he's a victim; records show no injury

Johnson Controls Inc. CEO Alex Molinaroli has drawn scrutiny and criticism because he has paid legal bills for and provided substantial financial support to a man who was convicted Sept. 3 of running a $50 million Ponzi scheme.

Molinaroli has explained the connection, saying he was a victim of the man, Joseph Zada, not an ally.

But federal court records don't portray the auto-parts chief as an injured party.

Zada's defense attorney as well as federal prosecutors referred to Molinaroli not as a victim but as Zada's "benefactor," court documents show. A U.S attorney told a U.S. District Court in Florida on Sept. 3 that Zada's defense team had said Molinaroli was willing to put up $10 million over the next few years to repay victims of the Ponzi scheme.

Molinaroli, 56, has acknowledged he had discussions about helping pay restitution to victims, but stopped short of offering to do so. Court documents also indicate that Zada's attorney, Richard Lubin, believed Molinaroli was willing to give Zada financial help, but on Sept. 30 Lubin told the court he had just learned "Mr. Zada's past benefactor will not be able to continue his support."

Molinaroli, through a JCI spokesman, declined to be interviewed for this report. "He's done talking about this," the spokesman, Fraser Engerman, said.

Lubin did not return phone calls for comment. The U.S. attorney for the Southern District of Florida declined to comment because the case is still open.

On Saturday, the Milwaukee Journal Sentinel reported new details of Molinaroli’s financial support for Zada. A 2012 deposition, which was obtained by the paper, showed Molinaroli wired about $100,000 to a woman in Germany he did not know. Asked why he did that, Molinaroli replied: "Same reason. To support Joe Zada."

The JCI CEO also acknowledged paying for trips by Zada to Frankfurt, Las Vegas, Florida and London; buying him a Ford Explorer; and signing a document saying Zada had repaid a $2.58 million loan from Molinaroli when Zada had not actually done so.

The deposition was taken by an attorney representing Sergei Fedorov, the former Detroit Red Wings star, who claims to have lost $40 million in Zada’s scheme.

Molinaroli also acknowledged in the deposition he put another JCI excutive, Allen Martin, in contact with Zada. Bankruptcy records show Zada owed Martin $225,000, according to the Journal Sentinel. Martin's LinkedIn profile shows he left JCI in 2013.

Molinaroli is leading the push to spin off JCI's vast automotive seating and interiors businesses into an independent, $22 billion company, a deal to be completed next year. The split will leave Johnson Controls with two main product lines -- batteries and building energy management -- that Molinaroli believes are less vulnerable to the auto industry's ups and downs.

News of the CEO's involvement with Zada surfaced in an Oct. 22 report in the Milwaukee Journal Sentinel. Two days later, Molinaroli confirmed to the paper he had given Zada financial help that went toward legal bills. In 2012, he bought Zada's Grosse Pointe Shores, Mich., mansion, and allowed Zada to live there rent free. But Molinaroli characterized himself as a victim, adding that he barely knew Zada and didn't know the details of how his money was to be invested.

Molinaroli told the Journal Sentinel he met Zada through his stepson, John Shealy. In 2013, Shealy pleaded guilty to charges related to a federal investigation of a synthetic marijuana production ring.

For now, JCI's board and Wall Street are giving Molinaroli the benefit of the doubt. JCI lead director William H. Lacy said in a statement that the CEO has the board's "full support."

Said David Whiston, an analyst for Chicago-based research firm Morningstar Inc.: "If they really wanted to get rid of him, they'd have gotten rid of him. Unless there's more to this story, I think it's a dead issue from a business point of view."

During a conference call last week announcing JCI's 6.6 percent increase in quarterly profit from the year-earlier period, to $369 million, Molinaroli didn't mention the Zada matter and no analysts asked about it.

Asked for an assessment, Jeffrey Sonnenfeld, an associate dean at the Yale School of Management, said the Zada situation suggests Molinaroli "is reckless in his discretion and his financial judgment may be impaired."

He suggested Molinaroli "should be put on probation" and the JCI board should accelerate the succession process. He added: "In the midst of this spinoff, they don't want to add to the disruption."

Molinaroli joined JCI in 1983 and was named CEO in 2013. This is the second time that his personal judgment has been questioned since taking the helm. Last year, reports surfaced that Molinaroli had an affair with a Johnson Controls consultant. The board fired the consultant and cut Molinaroli's $20 million annual compensation package by $1 million.

David Sedgwick contributed to this report.