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10.10.03
Politics and Economy:
Corporate Scandals
More on This Story:
Updates

It's not hard to tell that the public perception of Wall Street has altered in the last few years. Both the WALL STREET JOURNAL and FORBES publish intermittent "scandal scorecards" and USA TODAY now has a permanent sidebar on its financial news Web pages headed "Latest Scandal Stories." NOW viewers write in frequently to inquire about the fate of those who were making financial headlines during the past few years.

Find out what's happening to some of the other corporate executives embroiled in scandal below. And you can learn more about the erupting scandal in the mutual fund industry by visiting our Mutual Funds page.




Adelphia
John J. Rigas, his sons Timothy and Michael, and former assistant treasurer Michael C. Mulcahey have been accused of massive fraud that cost Adelphia, the nation's sixth-largest cable company, $2.5 billion. The government is seeking forfeiture of that same amount. The indictment alleges that those charges looted the company "on a massive scale," eventually driving it into bankruptcy. The indictment also charges that the Rigases used Adelphia's accounts for such endeavors as buying the Buffalo Sabres hockey team and building a golf course. In addition to the criminal charges, The Securities and Exchange Commission and the new management of Adelphia have filed civil charges against the same defendants.

Rigas and the other defendants have maintained their innocence, arguing that Adelphia's directors approved the majority of the transactions in question. However, former Adelphia Vice President James R. Brown and Timothy Worth, former Director of Accounting have pleaded guilty to securities fraud and will testify against the Rigases.

The criminal trial is set to begin next January. Adelphia, under new management, hopes to exit bankruptcy in 2004. THE WALL STREET JOURNAL estimates that Adelphia investors lost $3.5 billion from the stock's high in 1999.

  • Adelphia Restructuring Update

    Arthur Andersen and Enron
    In the wake of the Enron scandal, Arthur Andersen faced the unusual situation of having its entire firm indicted on criminal charges. The CEO of the firm resigned and the lead auditor for Enron, David Duncan pleaded guilty and testified against Enron. Andersen was found guilty and fined $500,000. Andersen has stopped practice as an accounting firm in the United States but it is still facing lawsuits by creditors and Enron shareholders.

    On May 1, 2003 an additional round of charges came down in the Enron case. Former Enron finance chief Andrew Fastow, and his wife Lea are accused of skimming profits from the company's wind farm operations and tax evasion. In addition, treasurer Ben Glisan and former finance executive Dan Boyle have been charged with securities fraud, insider trading, falsification of accounting and tax records. Seven former members of Enron's broadband and internet group have been charged with securities fraud, wire fraud, and money laundering.

    Kevin Howard, former chief financial officer of Enron Broadband Services, and Michael Krautz, the business unit's former senior accounting director, pleaded not guilty to charges of fraud, conspiracy and lying to the government in an accounting scam involving the company's Internet business.

    Former Chief Financial Officer Andrew Fastow has been indicted upwards of 70 counts. His trial is expected in 2004. Enron's former Treasurer pleaded guilty and was given a five-year sentence. Another former Treasurer, Ben Gilsen, has also pleaded guilty and is cooperating with investigators. No charges have been filed against former Enron Chairman and CEO Kenneth Lay and former Enron CEO Jeffrey Skilling.

    Enron has sold off its energy-trading unit and is attempting to sell some of its assets.

  • Full coverage of Enron from the archives of the Houston Chronicle
  • Full coverage of Arthur Andersen from the archives of the Houston Chronicle

    Global Crossing
    On Christmas Eve of 2002, the U.S. Department of Justice announced that it would not seek the indictment of Gary Winnick, founder and chairman of Global Crossing, a Bermuda-based company that built a 100,000-mile fiber-optic network connecting more than 200 cities in 27 countries. Winnick sold $734 million worth of stock, including $123 million in the weeks before the telecommunications company began to collapse.

    ImClone Systems Inc.
    Sam Waksal, former CEO, was charged in 2002 with insider trading, and pleaded guilty to six counts, including bank fraud, securities fraud, conspiracy to obstruct justice, and perjury. In October 2002, Waksal pleaded guilty to a six-count indictment, including charges he tipped off his daughter, Aliza, that the Food and Drug Administration's decision to review ImClone's cancer drug Erbitux. In June, 2003, Waksal was sentenced to seven years in prison. He was also required to pay $3 million in fines and $1.26 million in restitution. He began serving his sentence as a minimum-security facility in Pennsylvania in July 2003. Waksal is also banned for life from ever leading another public company.

    ImClone and Bristol-Myers Squibb recently resubmitted Erbitux to the FDA after favorable results in a European trial.

    Merrill Lynch and Co.
    In 2002 NOW WITH BILL MOYERS reported extensively on the role played by stock analysts at Merrill Lynch in the financial scandals of the Internet bust. Among the most damning evidence used by New York Attorney General Eliot Spitzer were e-mails written by star Internet stock analyst Henry Blodget which praised companies to investors while denigrating them privately. (Read Blodget's e-mails.) Merrill Lynch agreed to pay a $200 million fine for issuing fraudulent research. The company also changed its payment practices, prohibiting analysts payments from being related to the firm's investment-banking work. Henry Blodget was fined $4 million and banned from the securities industry for life. The SEC is still investigating the implications of Merrill's research reports, and some investors have filed suit against the company.

    Tyco
    Earlier in 2003, Tyco International Ltd. filed a $400 million lawsuit against former chief financial officer Mark Swartz, claiming he looted the conglomerate for his personal gain. Swartz already faces criminal charges of corruption, conspiracy, grand larceny and falsifying records filed by government prosecutors, who say he and former CEO L. Dennis Kozlowski stole $600 million from Tyco. Former general counsel Mark Belnick was also indicted.

    The trial against Kozlowski and Swartz for "enterprise corruption" got underway in New York City in last September, 2003. Belnick's trial is slated for early 2004. While these three have pleaded innocent, former Tyco director Frank Walsh has pleaded guilty to fraud.

    Tyco has an entirely new executive board and has restructured its debt. Tyco has asked a federal judge to dismiss securities fraud claims against the company, arguing that the troubled conglomerate was the victim of deceit by former senior executives, according to court papers.

  • Tyco Fraud InfoCenter

    Qwest
    In February 2003, the Justice Department handed down a 12-count criminal indictment against three former Qwest employees: former CFO Grant Graham, former senior vice president Thomas Hall, former assistant controller Bryan Treadway, and former vice president John Walker. All four have pleaded innocent to artificially inflating Qwest revenues to meet Wall Street targets. Four of the counts each carry a penalty of 10 years in prison and a $1 million fine. The others are punishable by five years in prison and a $250,000 fine. In addition, the SEC has filed civil charges against those four and four others.

    In early October of 2003, the SEC announced a $25,000 settlement with a former sales director at Qwest. That executive, Loren Pfau was accused of making secret deals in order to up the company's revenue numbers.

  • U.S. Department of Justice release on Qwest indictments

    WorldCom
    The WALL STREET JOURNAL calls the WorldCom scandal "the biggest accounting scam ever," estimating the fraud in the books at $11 billion.

    After the first discrepancies came to light in June 2002, CFO Scott Sullivan was immediately fired. He has since been indicted on fraud and conspiracy charges. His lawyers sought a change of case venue from New York to Washington, and dismissal of six of the seven counts relating to the company's $9 billion accounting scandal. In January 2003, a federal judge refused to dismiss the charges or move the case, and set a tentative trial date of February 2004.

    Former WorldCom CEO Bernard Ebbers, who was pushed out in April 2002, has been accused of securities fraud in the state of Oklahoma. No federal charges have been filed against him.

    In addition, four individuals formerly involved with WorldCom's accounting have pleaded guilty to related charges: controller David Myers, director of general accounting Buford Yates Jr., director of management and reporting Betty Vinson, and director of legal entity accounting Troy Norman.

    WorldCom filed for bankruptcy in July 2002 and is expected to emerge with nearly no debt in a matter of months. The SEC accepted a fine from WorldCom of $500 million in cash and $250 million in stock.

    Sources: THE NEW YORK TIMES; FORBES; THE WASHINGTON POST; THE WALL STREET JOURNAL; BANK & LENDER LIABILITY LITIGATION REPORTER

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