November 2, 2002
FROM ADELPHIA TO WORLDCOM, it's getting hard to know the corporate scandals without a scorecard. Here's a quick rundown of who's under indictment and what's up next:
The Allegations: Prosecutors say members of the cable company's founding family and two former executives looted the firm "on a massive scale," spending company funds on personal expenses, such as a $12.8 million golf course. The firm has been accused of hiding business relationships between Adelphia and entities tied to the founders and for inflating its financial results.
What's Happened: All were indicted on federal fraud charges. The SEC filed civil charges, and Adelphia sued the Rigases. The individuals and company have denied wrongdoing.
What's Next: The government is seeking forfeiture of $2.5 billion in allegedly illegal proceeds from the Rigases.
Grand Jury Indicts Former Adelphia Officials (09/24/02)
The Allegations: Federal prosecutors charged the accounting firm with obstructing a Securities and Exchange Commission investigation into Enron Corp.'s collapse by shredding tons of documents.
What's Happened: Andersen partners forced Mr. Berardino to resign in March following the firm's indictment. A jury found Andersen guilty of obstruction after Mr. Duncan, the firm's lead auditor for Enron, pleaded guilty and testified against Andersen. Jurors said they were more influenced by evidence that a memo by Ms. Temple had prompted the document destruction. Andersen was fined $500,000 and sentenced to five year's probation. The firm is winding down operations barred from auditing public companies and having surrendered all its state licenses. Federal criminal and civil investigations continue. Andersen has been sued by Enron creditors and shareholders. The firm's overseas partnerships settled with Enron shareholders for $60 million.
What's Next: The company has said it will appeal its criminal conviction. It also faces shareholder lawsuits.
Andersen Is Sentenced, Fined For Obstructing Enron Probe (10/16/02)
The Allegations: The New York attorney general and federal investigators are probing whether Citigroup's Salomon Smith Barney's securities unit, particularly its former star telecom analyst, provided overly rosy stock recommendations to win investment-banking business. Authorities also are investigating whether Salomon allocated shares of initial public offerings in a bid to win business.
What's Happened: Citigroup paid $5 million to settle administrative charges by the National Association of Securities Dealers that Mr. Grubman issued unrealistically optimistic research about Winstar Communications Inc. Citigroup neither admitted nor denied the allegations. Mr. Grubman, who was forced to resign, is fighting the charges. Mr. Spitzer sued former WorldCom CEO Bernard Ebbers, former Qwest executives Philip Anschutz and Joseph Nacchio and others, alleging they steered business to Salomon in exchange for hot IPO shares. The defendants denied wrongdoing. Other investigations continue.
What's Next: Citigroup is trying to reach a universal settlement of all probes and could pay fines reaching hundreds of millions of dollars.
Citigroup Chief Sanford Weill to Testify in Probe of Salomon(10/23/02)
The Allegations: Prosecutors and regulators say the former energy giant -- and, in particular, its CFO -- created off-the-books partnerships and used aggressive accounting methods to hide massive debt and inflate the firm's bottom line. Enron auditor Arthur Andersen was accused of destroying documents relevant to the investigation.
What's Happened: Mr. Fastow was indicted on 78 counts of fraud, money laundering and conspiracy to inflate Enron's profits. Prosecutors moved to seize $37 million of assets from him, some of his friends and family members on the grounds that they obtained the money illegally. Mr. Fastow has said he was following the orders of superiors, while Messrs. Lay and Skilling have said they weren't involved in the technical details of the transactions. Mr. Kopper pleaded guilty to money laundering and conspiracy to commit wire fraud. He forfeited $8 million to settle an SEC civil fraud case. Andersen was convicted of obstruction and lost its U.S. license.
What's Next: The Justice Department could seek to use Mr. Fastow's testimony against Messrs. Lay, Skilling and other executives.
Enron's Fastow Is Indicted on Fraud Charges (10/31/02)
The Allegations: The Justice Department, the SEC and a House panel are probing whether the companies and other telecom carriers traded network capacity they may not have needed to make revenue appear artificially high.
What's Happened: Global Crossing filed for Chapter 11 bankruptcy protection in January. Mr. Nacchio resigned under pressure. The companies and executives say the transactions were legitimate ways to augment their networks while demand was high. Qwest restated $950 million in optical-capacity sales and said it may have to restate another $531 million in similar transactions. The SEC has ruled that telecommunications companies acted improperly in booking swap revenue and rebuffed a Global Crossing settlement offer. Mr. Winnick promised to contribute tens of millions of dollars to offset the 401(k) losses of Global Crossing employees.
What's Next: The companies are negotiating with the SEC and the Justice Department as investigations continue by those agencies and the House panel.
Winnick Pledges Millions to Offset Employees' Losses (10/02/02)
The Allegations: Authorities believe the drug maker's then-CEO tipped off family and friends that regulators were about to reject its application for a promising cancer drug, allowing them to dump the stock before it tumbled.
What's Happened: Dr. Waksal pleaded guilty to securities fraud, bank fraud, conspiracy to obstruct justice and perjury. Federal investigators believe Ms. Stewart had inside information when she sold her ImClone shares, an allegation she denies. The SEC notified Ms. Stewart it intends to bring charges against her. Messrs. Bacanovic and Faneuil, since fired by Merrill, initially said the Stewart sale was part of a pre-agreed upon plan, though Mr. Faneuil later changed his story. Mr. Faneuil pleaded guilty to accepting a bribe to lie about the incident.
What's Next: Mr. Faneuil is expected to provide testimony against Ms. Stewart.
Martha Stewart Is Given Notice of Possible SEC Charges (10/22/02)
The Allegations: The nation's largest brokerage firm, especially its former star Internet analyst, was accused of giving investors overly rosy research reports about the stock of its investment-banking clients.
What's Happened: Merrill agreed to pay $100 million to settle a probe by Eliot Spitzer, the New York attorney general. Under the deal, Merrill analysts no longer will be evaluated and paid based on their role in helping the firm win investment-banking business unless such participation is intended to benefit the investor. Also, a "compliance monitor" will oversee the firm's research practices. Mr. Spitzer agreed to drop the investigation into individuals examined in the probe, including Mr. Blodget. But the deal doesn't preclude other prosecutors or regulators from taking action. Mr.Komansky apologized.
What's Next: The firm and individuals may face action by other regulatory agencies and civil lawsuits by clients and shareholders. Merrill is trying to bolster its reputation, which was hurt by the negative publicity about its research.
Merrill Will Pay $100 Million Fine to Settle New York's Analyst Probe (05/22/02)
The Allegations: New York prosecutors allege the company's former CEO and former CFO stole more than $170 million from the conglomerate in unauthorized compensation and illegally reaped an additional $430 million from stock sales. Prosecutors say the former CEO used the company funds on lavish gifts and parties, including a birthday bash for his wife on the Italian island of Sardinia.
What's Happened: Messrs. Kozlowski and Swartz have been indicted on charges that they stole company funds. Mr. Kozlowski has also been indicted on charges of evading New York sales taxes on $13 million in art. Mr. Belnick has been charged with falsifying records to cover up $14 million in improper loans. All three have pleaded not guilty.
What's Next: Mr. Kozlowski is scheduled to appear at a status hearing Nov. 7 in New York.
Ex-Tyco Officials Avoid Jail After Bail Hearing (09/27/02)
The Allegations: Prosecutors say several top executives were involved in a massive accounting fraud that hid costs and inflated profits by more than $7 billion over three years.
What's Happened: Mr. Ebbers was ousted in April. Mr. Sullivan was fired after an internal audit run by Ms. Cooper revealed the alleged accounting scheme. Mr. Sullivan has been indicted on securities-fraud charges, along with his aide. Mr. Grubman, who touted WorldCom to Salomon's research clients, was forced to resign amid an investigation into his conduct. All have maintained that they did nothing improper. Messrs. Myers and Yates pleaded guilty to securities fraud, though Mr Yates said he was following orders from supervisors.
What's Next: Prosecutors hope to use testimony from Messrs. Myers and Yates against others. Ms. Vinson and Mr. Normand pleaded guilty to fraud charges and are expected to cooperate with the government.
How Three Unlikely Sleuths Exposed Fraud at WorldCom (10/30/02)