New York August 1, 2002: - Two former WorldCom executives were charged Thursday with hiding billions in expenses and lying to investors and regulators in a desperate bid to keep the company afloat. Former WorldCom chief financial officer Scott Sullivan and former controller David Myers surrendered to the FBI to face fraud charges in the latest blow to the now bankrupt telecommunications giant and corporate America. It was the second time in two weeks top executives of large corporations were arrested after their firms filed for bankruptcy protection. U.S. Magistrate James Francis released Sullivan on $10 million bond and Myers on $2 million bond at a brief hearing in federal court in Manhattan. The defendants and their lawyers were not immediately available for comment. A criminal complaint alleges that Sullivan directed Myers to conceal about $3.8 billion in expenses by dispersing the debts throughout the company's capital accounts. As the scheme was unraveling in June, Myers told WorldCom accountants that the company "could not continue with the cost structure at the current levels and that if the cost structure did not change, the company 'might as well shut the doors,'" the complaint said. Federal agents led the pair out of New York's FBI headquarters in handcuffs at midmorning enroute to the courthouse. The men, both wearing dark suits, did not speak to a swarm of reporters; two passersby clapped. The seven-count complaint charges them with securities fraud, conspiracy, and filing false statements with the Securities and Exchange Commission. Each securities fraud and false statement charge carries a maximum prison sentence of 10 years. If convicted of conspiracy, the men face up to five years in prison. The complaint alleges the defendants never disclosed the questionable accounting practices to external auditors, including Arthur Andersen. The secret transfers, which began in 2001, "allowed WorldCom to defer recognizing a substantial portion of its current operating expenses, thereby allowing WorldCom to report higher earnings," court papers said. Sullivan and Myers were dismissed from WorldCom in June after the company admitted it falsely accounted for nearly $4 billion in expenses, allowing executives to continue reporting profits when the company was actually losing money. The charges put pressure on the pair to tell investigators what they know about their former boss, former chief executive Bernard Ebbers, who also is being investigated by prosecutors. The SEC filed civil fraud charges against WorldCom, citing "accounting improprieties of unprecedented magnitude." The Justice Department has also considered taking the more drastic step of charging WorldCom as a corporation. A conviction of the long-distance phone company could drive it out of business.
WorldCom, which owns MCI, the nation's second-largest long distance carrier, filed for bankruptcy under Chapter 11 on July 21, the largest such filing in U.S. history. U.S. Bankruptcy Judge Arthur Gonzalez approved $2 billion in financing to keep WorldCom operating as it reorganizes its finances. He also granted the Justice Department's request for an independent examiner to ensure an honest accounting of the company's value and investigate for mismanagement, irregularities and fraud. In last week's case, John Rigas, founder of cable company Adelphia Communications, and two of his sons were charged in Manhattan with securities and bank fraud for allegedly diverting hundreds of millions of dollars from company accounts for their personal benefit. White House spokesman Ari Fleischer said Thursday that President Bush "is determined that people who break America's laws and engage in corporate practices that are corrupt will be investigated, and will be held liable, will be held accountable and will likely end up in the pokey where they belong." ("For the family of hypocrites [shall be] desolate, and fire shall consume the coverings of bribery!!" Job 15:34). For more on this click here***And here is yet more
New York July 27, 2002: - It's a betting game that the entire world is watching, as Wall Street investors could determine the course of the economy in the United States and abroad. Do they have the nerve to drive stocks up? The stock market's plunge has flushed out more than $7 trillion in wealth since the bubble burst in 2000 and people who got filthy rich during the Great Bull Market of the 1990s are suddenly feeling poor. Fair to wonder what impact this reverse wealth effect will have on consumer spending. Back in the boom days, investing in stocks was such a huge money-making machine that the Street viewed the market as "The Economy." Now that stocks are crumbling, how much longer before the market shock begins to hurt consumers who generate two-thirds of the nation's activity. While the Dow Jones industrial average on Wednesday posted its biggest one-day gain of the year, veteran traders warn that one-day wonders do not signal a trend, and it's unclear that investors plan to come off the sidelines.
If the rope around people's necks winds tighter and they see more of their wealth go up in smoke, the risk is that consumers may tighten their purse strings, thereby shutting down the main engine driving the world's biggest economy and adding to Wall Street's woes. The risk cannot be ignored because of the public's massive participation in the market. Nearly half of the nation's households had a stake in stocks at the height of the bull market. The damage is already being felt. U.S. consumer sentiment tumbled in early July as Americans agonized over their losses. The gloom probably got worst in the two weeks after the University of Michigan did the survey, with the Dow tumbling more than 1,000 points. In the 1990s, mutual funds were the financial fashion and an unparalleled flood of cash poured into the wishing well of stock funds. But many investors are wondering if there will always be a pot of gold at the end of the Wall Street rainbow. There's a big sucking sound in Manhattan's financial district. Investors are pulling money out of U.S. stock mutual funds. In June, investors yanked $13.8 billion out of stock funds, the third largest outflow on record, exceeded only by $15.4 billion in March 2001 and $30 billion in September following the attacks on the World Trade Center and the Pentagon, according to Lipper, the mutual fund tracking firm.
Indeed, people are getting tired of losing their shirts. Their 401(k) retirement plans have been turned into 911 emergency basket cases. The market is on course to post a third straight yearly decline. The last time that occurred was 1938 when investors were still reeling from the nasty memories of the Great Depression. The numbers speak for themselves. The Dow is down about 32 percent from its peak, the technology-laced Nasdaq composite has fallen an eye-popping 75 percent and the Standard & Poor's 500 is down 45 percent. The loss of stock market wealth will wreak havoc on the long-term health of the economy, says John Challenger, chief executive officer of Challenger, Gray & Christmas Inc., an international outplacement firm. A growing number of older Americans are postponing their retirement or have chosen to rein in spending because the crash has crushed their 401(k) plans. The alternative to working more or cutting back on spending will have a big impact on the economy, says Challenger. "The growing population of older Americans was expected to inject large sums of money into the economy through their mass consumption of goods and services," he says. "These seniors were among the wealthiest ever and were going to spend copious amounts of money in their 30-plus years of retirement."
There's a lot of talk the market needed to go through a healthy cleansing after years of excesses. Analysts are preaching that the longer the bear market hangs on, the more appealing the investment environment will be after the fall. But the fact that stocks have kept on falling and the selling has been so severe since June is bearish for the average investor. More importantly, people should not expect a socko ending to this summer's market crumble. Stocks may bounce back but worth keeping in mind is that bear-market rallies are tricky. Dead-cat bounces or in this case, a dead-bull recovery, are much more dangerous than buying in a bull market because bear-market rallies can reverse course at the drop of a dime. The market has been rocked by an unexpected stream of bad corporate earnings, economic uncertainty, terrorist attacks and stunning corporate scandals. The risk premium of owning stocks has gone up, and investors have been driven to safe havens such as bonds, money markets and gold. The smart money is running to the bomb shelters because historically, years of super-normal stock returns -- 20 percent plus gains in the 1990s -- have usually been followed many years of sub-par returns.
As investors avoid stocks, the other risk is that companies will be starved of capital. Lacking cash to grow, businesses may be forced to make a new round of spending cuts that would slam the economy back into recession. A dramatic drop in business spending was the main reason the economy slipped into recession last year. Business spending continues to be the wobbly wheel on a shopping cart. Second-quarter capital spending increased for the first time in eight quarters, but a closer look at the numbers showed the gain was caused by companies needing to replace inventories that had dropped to depressed levels in the past year. The economy is still shaky and the barrage of rate cuts by the Federal Reserve last year failed to stimulate growth across a broad sector. There are many reasons why the rate cuts did not work. One is that the September 11 attacks on the United States happened just as the first couple of reductions were starting to filter through the economy. Since it takes six to nine months for the Fed's stimulative easy money to do its thing, the process was just beginning to ooze through as the airplanes hit. Then, came the corporate scandals that drove a stake through the heart of the market. For the week, Nasdaq fell 4.3 percent to 1,262, the S&P rose 0.6 percent to 853 and the Dow rose 3 percent to 8,264.
Washington July 23, 2002: - Major investment banks gave Enron Corp. multimillion-dollar loans that helped the now-bankrupt company disguise its true financial condition and, in some cases, they knew that Enron was using deceptive accounting for the loans, a Senate investigator testified Tuesday. The bipartisan investigative subcommittee of the Senate Governmental Affairs Committee reviewed a million pages of documents, most of them subpoenaed, and interviewed dozens of witnesses from Enron and its Wall Street investment banks. It found some banks actively aided Enron in its dodgy accounting in return for big fees and favors in other deals, investigator Robert Roach told a hearing before the panel. "The evidence indicates that Enron would not have been able to engage in the extent of the accounting deceptions it did, involving billions of dollars, were it not for the active participation of major financial institutions willing to go along with and even expand upon Enron's activities," Roach said at the hearing. There also is evidence that some of the banks allowed investors to rely on Enron financial statements they knew were misleading, Roach said. The banks used complex financial transactions to boost Enron's anemic cash flow to match its profit growth on paper, according to lawmakers. The energy-trading company recorded the money from the bank loans said to total $8 billion as prepaid trades of natural gas and other commodities with an entity based in the Channel Islands off Britain. He said that Citigroup Inc., the nation's largest financial institution, and J.P. Morgan Chase & Co., also pitched the deals to other companies. Citigroup "shopped" the Enron-style deals to 14 companies, successfully selling it to at least three, Roach testified.
Houston-based Enron, which filed for bankruptcy in December, taking the investments of millions of people with it, used a web of thousands of off-balance-sheet partnerships to hide some $1 billion in debt from investors and federal regulators. If not for the deals with the banks, Enron's debt would have been $14 billion in 2000 rather than the $10 billion the company reported, and its cash flow would have been half of the $3.2 billion it reported, according to subcommittee investigators. If the true picture had been known, it would have put downward pressure on Enron's stock price and credit ratings from agencies such as Moody's Investors Service and Standard & Poor's. Officials of those agencies, testifying at Tuesday's hearing, said they were unaware of the transactions with the banks and that Enron misled them and withheld information. "Why didn't the watchdogs bark?" Sen. Joseph Lieberman, D-Conn., asked of the credit-rating officials. In a 1998 e-mail, a J.P. Morgan Chase executive in Houston wrote that "Enron loves these deals." Enron officials "are able to hide ... debt" from Wall Street analysts, he wrote. Jeffrey Dellapina, a managing director of J.P. Morgan Chase at its New York headquarters, testified at Tuesday's hearing that the e-mail was "inaccurate." Officials of the two financial companies denied any wrongdoing, saying lenders shouldn't be held responsible for how borrowers such as Enron recorded their loans. Bank officials stressed at the hearing that Enron's former auditor Arthur Andersen had reviewed the company's accounting for the transactions and approved it. Before senators heard the testimony, they decried the wave of accounting scandals rocking investors' confidence and the markets. Telecom giant WorldCom Inc. filed the biggest bankruptcy in U.S. history on Sunday, less than a month after it disclosed that it hid nearly $4 billion in expenses through deceptive accounting.
"It's clear that Enron was not alone in shady financial dealings," said Sen. Jim Bunning, R-Ky. "Americans across this country are watching their savings and their pensions dwindle." Citigroup has called the transactions with Enron "entirely appropriate at the time based on what we knew and what we were told by Enron." Enron's Washington attorney, Robert Bennett, has said the company would continue to cooperate with investigations by Congress, the Justice Department and the Securities and Exchange Commission, and that people should not "rush to judgment." In April, Enron shareholders who had sued the company for allegedly defrauding them added nine investment banks, including Citigroup and J.P. Morgan Chase, that financed the deals to their lawsuit in federal court in Houston. The shareholders said the banks' knowledge of Enron's questionable partnerships and other transactions gave them an inside view of the company's financial condition as they sold Enron securities to investors. The other banks named in the lawsuit were Credit Suisse First Boston USA Inc., Canadian Imperial Bank of Commerce, Bank of America Corp., Merrill Lynch & Co., Lehman Brothers Holding Inc., Britain's Barclays Bank PLC and Germany's Deutsche Bank AG.
New York July 19, 2002: - Stocks skidded on Friday, slamming the Dow Jones industrial average to lows last seen in 1998, well below its panic bottom of September 2001, as woes at drug giant Johnson & Johnson and tech heavyweight Sun Microsystems Inc. sent investors fleeing. "Money managers are getting calls saying, 'Just liquidate my holdings. Raise cash,"' said Will Muggia, manager of the Touchstone Emerging Growth Fund. "Part of the fear is that there's no place to hide. People are selling everything that hasn't gone down yet." The Dow has fallen every session but one in the past two weeks, erasing 14 percent of its value, as Wall Street pros question the outlook for company profits amid widening corporate scandals. Other major market gauges also are floundering at multiyear lows. Investors who had hoped second-quarter earnings would bring brighter forecasts have been disappointed as a slew of companies have warned that the outlook for corporate profits remains dim. More than half of the companies in the Standard & Poor's 500 have now reported results. "There's nothing but bad news out there and when you see the cornerstones of the tech market, like Sun Microsystems, trading below $5, it really takes the wind out of your sails," said Matt Holscher, head of Nasdaq trading for WR Hambrecht & Co. "It's water torture. It's brutal." The Dow sank 390.23 points, or 4.64 percent, at 8,019.26, according to the latest available figures. The decline took the blue-chip average to its lowest close since October 1998 and gave it the seventh-largest points decline in its history. The broader Standard & Poor's 500 Index lost 33.81 points, or 3.84 percent, to 847.75. The tech-laced Nasdaq Composite Index fell 37.88 points, or 2.79 percent, at 1,319.07, to its lowest close since May 1997. For the week, the Dow was down 7.8 percent, the Nasdaq slumped 4 percent and the S&P 500 slid 8 percent. Declining stocks trounced advancers by a ratio of roughly 3 to 1 on the New York Stock Exchange and 5 to 2 on the Nasdaq. More than 2.63 billion shares changed hands on the Big Board and more than 2.37 billion on Nasdaq. "The outlook is still not good," said Muggia. "Earnings may have bottomed but there's no palpable sign of an uptick yet. Investors are waiting for capital spending and information technology spending to increase and they haven't seen it." As a result investors have been yanking cash out of mutual funds worried that stock declines will further slice into personal wealth and retirement savings. Domestic equity funds have seen net redemptions for seven consecutive weeks, including a whopping $10.7 billion outflow in the last week according to Banc of America Securities.
Johnson & Johnson was the talk of Wall Street after the drugmaker confirmed federal regulators are probing allegations of fraudulent record-keeping at a Puerto Rico plant that makes an anemia drug, one of the company's best-selling medicines. The stock ranked as the biggest loser in the Dow average, sinking almost 16 percent, or $7.88, to $41.85. Sun Microsystems was another sore spot. The computer maker reported its first quarterly profit in a year, but forecast another loss as it fights for deals in the midst of the technology downturn. Shares tumbled more than a quarter of their value, or $1.55, to $4.25 after having scraped out a fresh year low of $4.19 earlier. Still, some see the sharp declines as based on widespread panic rather than underlying fundamental weakness. "The crowd psychology has turned from wildly euphoric to the mirror image of that," said A.C. Moore, chief investment strategist at Dunvegan Associates. "I'm not sure it's really responsible to attribute (the drop in the last 10 days) to immediate external events such as company guidance. Just as 1999 and early 2000 were selling opportunities, this is a buying spot." "Most of the earnings that are coming out in technology are basically hitting the numbers, coming in-line, but the guidance is being revised down," said Jack Francis, senior Nasdaq trader at UBS Warburg. AOL Time Warner Inc. fell almost 7 percent as Wall Street sought clarity after a management shake-up that included the resignation of No. 2 executive Robert Pittman three months after he was chosen to revive its struggling online unit. Shares slid 87 cents to $11.58. Microsoft Corp., the world's largest software maker, fell $1.55 to $49.56, weighing on the Dow and the Nasdaq. The company scaled back its profit and sales outlook for the current year, and said growth was more likely to come later in the fiscal year.
US Treasuries firmed and gold prices rallied as investors fled to safe havens. The dollar sank to a new 2-1/2 year low versus the euro and slid toward a 17-month low point against the yen as equity markets fell and the US trade gap set a record in May for a second straight month! Still some see the recent sharp declines as sure signs the market is scraping out a bottom. "The public has lost faith in market, but I'm getting more bullish -- there have been seven weeks in row of equity mutual fund redemptions, which is a sign of capitulation selling," said Muggia.
Washington July 19, 2002: - ConAgra Foods Inc. has launched the nation's second-largest recall of ground beef because of potential contamination with a deadly bacteria that has sickened at least 16 people, the U.S. Agriculture Department said on Friday. The decision by the No. 2 U.S. food company to pull a total of nearly 19 million pounds of fresh and frozen ground beef at the height of the summer barbecue season ranks second to Hudson Beef's record recall of 35 million pounds of meat in 1997. The news sent shares down 7 percent. ConAgra is the-second biggest supplier of food and meat after Kraft Foods Inc. Its brand names include Hunt's Ketchup and Healthy Choice Meals. The number of illnesses from ConAgra beef tainted with E. coli 0157:H7 was difficult to pinpoint. The U.S. Centers for Disease Control said it confirmed at least 16 people were sickened by the ConAgra beef in Colorado, California, Michigan, South Dakota, Washington and Wyoming. Another six illnesses were under investigation. Earlier, USDA officials said at least 19 people had fallen ill because of the tainted beef. ConAgra agreed to recall almost 19 million pounds of beef on Friday, after first pulling 354,200 pounds from the market on June 30. The ground beef was sold in 21 states. "This action is being taken as a cautionary measure to ensure the protection of public health," Agriculture Secretary Ann Veneman said. "Public health is our number one priority." E. coli O157:H7 can cause bloody diarrhea, dehydration and kidney damage. Children and the elderly are the most at risk.
CONSUMERS URGED TO CHECK REFRIGERATORS: The 19 million pounds of additional meat recalled was produced at the company's Greeley, Colorado, plant between April 12 and July 11, the USDA said. Some of the meat was sold at Safeway grocery stores, although the USDA refused to detail how much. The USDA said it would publish later on Friday a list of meat inspection lot numbers that were stamped on packages of ground beef that has been recalled. Consumers should return the meat to a grocery store or discard it. "We have no way of knowing for sure how much (beef) is in consumers' hands," said USDA Undersecretary Elsa Murano. A ConAgra spokesman declined to comment, saying only that the company has held talks with the USDA over the past week. The recall also raises questions about ConAgra's pending deal to sell off more than half its fresh meat processing operations to a private investor group led by Hicks Muse Tate & Furst. The deal, valued at about $1.4 billion, was intended to allow ConAgra to focus more on branded consumer products such Healthy Choice and Armor meats. Analysts said the huge recall may not dampen consumer demand for grilled hamburgers at summer picnics. "I continue to be amazed at the capacity of the American consumer to brush off most recalls," said Credit Suisse First Boston food analyst David Nelson. "I've yet to see Americans get overly concerned about this type of thing." ("[It is] better to hear the rebuke of the wise than for one to hear the song of fools!!" Ec 7:5).
Consumer groups criticized the Bush administration for delays in recalling the ConAgra beef. The department's Food Safety and Inspection Service admitted that it waited 10 days after federal meat inspectors first detected the E. coli bacteria in a ConAgra sample before notifying the company. An embarrassed USDA this week revised its food safety policy to require federal meat inspectors to immediately alert a beef company when its sample tests positive for E.coli. Inspectors will no longer wait until an investigation is complete before notifying a company. Carol Tucker Foreman, food policy director for the Consumer Federation of America, said the USDA was more concerned about protecting big agribusiness companies than consumers! (See Eph 6:12). The National Cattlemen's Beef Association, which represents ranchers, said the recall showed the need for meat companies to invest in irradiation technology that uses low doses of electrons or gamma rays to destroy dangerous bacteria. The largest U.S. food recall for E. coli 0157:H7 contamination was in the summer of 1997. Hudson Foods first recalled 25 million pounds of its ground beef when 15 people in Colorado fell ill. The firm eventually pulled a total of 35 million pounds of beef off the market after investigators determined that some of the tainted ground beef was reworked into batches of non-contaminated beef. Hudson was purchased by poultry giant Tyson Foods Inc. one year later. The E. coli 0157:H7 bacteria is destroyed when meat is cooked to an internal temperature of 160 degrees Fahrenheit. Shares of ConAgra were off $1.55, or about 7 percent, to $22.20 in afternoon trading at the New York Stock Exchange.
London June 27, 2002: - Europeans were fuming on Thursday after another U.S. accounting scandal hit stock markets around the globe and further dented the value of their pensions, mortgages and savings. Across Paris, London and Berlin, small investors were counting the cost of "Wobbly Wednesday," the day shares slumped after U.S. phone company WorldCom Inc. admitted it had fiddled the books to the tune of $4 billion. While Europeans have lower direct exposure to stock markets than Americans, many voiced concern over the knock-on effect on other assets and trust in the financial system as a whole. "It is worrying that these days we are so exposed to what happens elsewhere, in companies many people in France haven't even heard of, but this is the effect of globalization," said Jean-Pierre Caslot, a 69-year old former banker, in Paris. "My worry is not so much my pension, as this is not linked to the stock market, but rather my life insurance which is, unfortunately." Britain's Daily Mirror tabloid said everyone was a loser as weak shares hit pensions, savings, mortgages and job prospects. "It makes you think you'd be better off keeping your savings in an old sock under the bed," it wrote in an editorial.
The WorldCom scandal rivals the dramatic collapse of U.S. energy trader Enron, which went bankrupt after revealing late last year it overstated earnings by hundreds of millions of dollars. Corporate America's reputation has been sullied. "There is a lot of dishonesty, particularly dishonesty in the West," said Noginder Mattu, a London newspaper vendor in his 40s. "If this happens again we will only be shooting ourselves in the foot. People will lose belief in the markets altogether." Moral indignation occasionally spilled over into anger. "WorldCom? Never heard of it!" said Sieglinde Sander, 71, retired, in Berlin. "However, for me, the whole thing sounds typically American. The patriotism in the United States has been annoying me for years, I don't like their culture very much. Americans will probably never behave decently."
Small investors, increasingly spooked by stock market losses and growing gloom about the global economy, have been seeking other places to put their money. "People are saying I am frightened, I want to get out (of shares)," said Justin Urquhart Stewart at Seven Investment Management in London. "Recently the buying and selling of shares has made your broker wealthy and you poor." The problem for many is where to put the money instead. "Bricks and mortar" was one Londoner's response, reflecting the booming British housing market. Gold has been another traditional "safe haven" winner. For the super-rich, the fine art world is proving buoyant in uncertain economic times. "Low interest rates, shaky stock markets and top quality works starting to come through are combining to really buoy the market," auction house expert Jussi Pylkkanen said. This week a private buyer paid 16 million pounds ($24 million) for a Picasso painting at a London auction. For those with more modest means, postage stamps are a possible alternative. "Most people cannot afford a valuable painting now, and so it cascades down, and British people are huge collectors," said Paul Fraser, chairman of Stanley Gibbons, the most famous name in stamp collecting. "There is likely to be growing interest in stamps now. We want to catalog all stamp prices online and if prices can change on a more regular basis then you could get more dynamic interest in it," he told Reuters. While a less than obvious choice for investors, stamp values have risen by an annual average of around 10 percent in recent years -- an increase most European stock brokers can only dream of.
San Francisco June 25, 2002: - WorldCom Inc., the No. 2 U.S. long-distance carrier, on Tuesday said it had fired its chief financial officer after uncovering improper accounting of almost $4 billion in expenses, in the latest financial scandal to rock Corporate America. WorldCom also said it would cut 17,000 jobs, or more than 20 percent of its work force, starting on Friday, a cost-cutting move expected to save $900 million on an annual basis. The Clinton, Mississippi-based company said that accounting irregularities involving expenses misrecorded as capital expenditures had inflated its cash flow and that otherwise it would have reported a net loss for 2001 and the first quarter of 2002. The accounting irregularities, which did not conform to Generally Accepted Accounting Principles, included transfers between internal accounts of $3.06 billion in 2001 and $797 million in the first quarter of 2002. Accounting firm Andersen, whose role as the auditor of Enron helped lead to the energy trader's collapse, had audited WorldCom's financial statements for 2001. Andersen said its work for WorldCom complied with professional and Securities and Exchange Commission standards.
"The WorldCom CFO did not tell Andersen about the line cost transfers nor did he consult with Andersen about the accounting treatment," Andersen said in a statement. "It is of great concern that important information about line costs was withheld from Andersen auditors by the chief financial officer of WorldCom." The auditing firm said that WorldCom's financial statements for 2001 should not be relied upon. Shares of WorldCom had plunged in after hours trading on Tuesday following a report by CNBC that the company had uncovered accounting irregularities. The stock fell to 20 cents a share on the Island system from a close of 83 cents on Nasdaq. The previous closing low was 87 cents, while the stock had traded as high as $16.06 in the past 52 weeks. WorldCom also said it had fired Chief Financial Officer Scott Sullivan and accepted the resignation of David Myers as senior vice president and controller. "Our senior management team is shocked by these discoveries," said John Sidgmore, WorldCom CEO for less than two months. "I want to assure our customers and employees that the company remains viable and committed to a long-term future. Our services are in no way affected by this matter," he said in a statement. WorldCom said it had notified the Securities and Exchange Commission and had asked auditor KPMG to undertake a comprehensive review of its financial statements for 2001.
Houston, TX June 15, 2002: - Arthur Andersen was convicted Saturday of obstructing justice by shredding Enron-related documents in a verdict that could be the death knell for the shattered accounting firm and one that boosts prosecutors' efforts to get to the bottom of the Enron scandal. The jury took 72 hours over 10 days to decide that the destruction of paper and computer files was not routine housekeeping, as Andersen contended, but an attempt to thwart federal regulators investigating Enron. Andersen faces up to five years of probation and a fine of up to $500,000. It also could be fined up to twice any gains or damages the court determines were caused by the firm's action and barred from auditing publicly traded companies likely putting the crippled firm out of business. The verdict did not come easy; the jury said Wednesday that they were deadlocked and were ordered back to work. On Friday, the judge gave jurors greater flexibility to reach a guilty verdict by ruling they didn't have to agree on who committed a crime as long as they all believed someone at the firm "acted knowingly and with corrupt intent." U.S. District Judge Melinda Harmon will determine the firm's sentence. There was no immediate word from the defense team.
Andersen had lost hundreds of clients and partners even before the felony conviction in the first criminal trial to emerge from the Enron scandal. The firm and its employees are likely to face more prosecutions. The verdict is also a potential boon for prosecutors trying to get to the bottom of the Enron debacle. They have argued that Andersen had intimate knowledge of the complex off-the-book partnerships Enron used to boost its image of financial health before its collapse into bankruptcy last December. The energy trader is under a grand jury investigation, as well as scrutiny from Wall Street regulators and Congress. Prosecutors spent a month presenting testimony from employees, federal regulators and FBI agents. They also showed jurors mounds of documents, e-mails and handwritten notes they said proved Andersen had covered up a scandal. Their key argument was that Andersen just before regulators began investigating Enron suddenly promoted a little-used document policy as a signal to its Enron audit team to begin destroying files.
The star prosecution witness was David Duncan, the former Andersen partner who was in charge of the Enron audit team. He pleaded guilty to obstructing justice in April and spent nearly a week on the witness stand, telling jurors that he had signed an agreement with Andersen to present a united front that neither did anything wrong. He said he reneged on the agreement after a lot of "soul searching." "I obstructed justice," he testified. "I instructed people on the (Enron audit) team to follow the document retention policy, which I knew would result in the destruction of documents." The jury was also shown an October 10 video of Andersen partner Michael Odom telling colleagues including a dozen on the Enron audit team that the document policy should be followed. He said anything destroyed before litigation is filed was "great" because "whatever might have been of interest to anybody is gone and irretrievable." Nancy Temple, an in-house Andersen lawyer, also sent an e-mail to Odom on October 12 that said it "might be useful to consider" reminding the Enron audit team "of our documentation and retention policy. It will be helpful to make sure that we have complied with the policy."
Five days later, the Securities and Exchange Commission told Enron it was under an informal inquiry after the company announced a $618 million third-quarter loss and a $1.2 billion writedown in its own value. Duncan testified that he told his staff during an October 23 "pep talk" to comply with the document policy, but said he didn't explicitly order any shredding. Other evidence included an October 24 e-mail from Shannon Adlong, an assistant to Duncan, who wrote: "AARRGGH. Send more shredding bags. Just kidding, we ordered some." The shredding continued through November 9, when the audit team learned that the SEC had sent a subpoena for Enron documents to the firm the day before. Andersen argued that workers simply were weeding out unneeded documents. Defense lawyer Rusty Hardin said a number of important documents survived the shredding, suggesting there was no conspiracy to cover up Andersen's work on Enron's books. He got Duncan to testify that he preserved several potentially embarrassing records, including one labeled "Smoking guns you can't extinguish." The memo detailed Enron vice president Sherron Watkins' fears about d rumors of secret side deals and the accounting of so-called Raptor entities, which were backed by Enron stock but reported as separate from the company in financial statements. The Raptors enabled Enron to keep hundreds of millions of dollars in debt off its books. Hardin also noted that Duncan didn't decide he had committed a crime until after several meetings with prosecutors. Andersen was indicted for obstruction of justice in March after talks to settle allegations of wrongdoing broke down. The firm has lost more than 650 of its 2,300 public clients. Duncan could get up to 10 years in prison at sentencing August 26, though prosecutors are expected to seek a lesser sentence.
Tokyo May 17, 2002: - Japan said on Friday it had decided to slap 100 percent retaliatory tariffs on U.S. steel imports, the first time Tokyo has taken such action in a trade dispute. Japan's move comes a day after Washington was taken to task by the rest of the world's wealthy nations for a perceived protectionist shift in its trade policy, underlined by its March decision to apply tariffs on steel imports. Japan's Ministry of Economy, Trade and Industry (METI) said it had notified the World Trade Organization (news - web sites) (WTO) of its tariffs, which will take effect from June 18, initially on $4.88 million worth of U.S. steel and steel products. The widely expected decision came after Washington rebuffed Tokyo's last-minute plea for compensation for its tariffs.
Japan's tariffs are part of a larger retaliation plan worth $123.43 million to be implemented by Tokyo if the WTO rules against the United States for placing tariffs of up to 30 percent on steel imports to protect its ailing domestic industry. Friday was the deadline for Tokyo to notify the WTO of retaliatory measures. Tokyo has said it could technically scrap the plan if Washington decided to offer compensation for its tariffs within the next month, but ministry sources have said that was highly unlikely after U.S. trade representatives repeatedly turned down their compromise proposals. Japanese Trade Minister Takeo Hiranuma had asked U.S. Trade Representative Robert Zoellick in a last-minute telephone call early Thursday to defuse the row, but the two sides had failed to agree, ministry officials said.
Washington got a blunt message from other Organization for Economic Co-operation and Development (OECD) countries meeting in Paris on Thursday -- do not resort to protectionism. A communique issued in the OECD's name -- despite U.S. objections, according to diplomats -- said all OECD members were committed to pledges made in Doha, Qatar, last year to pursue free trade and take account of developing countries.
Rome April 16, 2002: - Millions of Italians staged the biggest strike in decades Tuesday to protest the government's plans to make it easier to fire workers. Airports were almost deserted, few trains were running, and banks, schools and post offices were closed. Workers by the thousands gathered in piazzas throughout the country for mostly festive rallies headed by union leaders and center-left politicians and sprinkled with celebrities supporting the general strike. In Rome, Oscar-winner Roberto Benigni, of "Life is Beautiful" fame, brightened up a huge demonstration in the Piazza di Popolo. "It's a grand demonstration," he said as the crowd roared its approval. "Everything is beautiful." In Bologna, demonstrators danced to the music of rock bands. "It's the joy of being united," explained Matteo Pallacani, a 22-year-old draped in a scarlet Che Guevara flag and wraparound sunglasses despite a pouring rain. The strike did not bring Italy to a standstill, but it slowed it down considerably. Hospitals were providing emergency services only and many factories stayed off the job. Fiat Group said nearly half its workers took part; unions claimed it was 90 percent.
About half the usual number of passenger trains were operating, said state railway spokesman Carmine Amodeo. "Many people knew of the strike beforehand so they avoided being stranded at stations," he added. Many foreign carriers, including British Airways, Iberia and Lufthansa, canceled flights; Alitalia, the national airline, scratched more than two-thirds of its flights by midday, said a spokeswoman. At Rome's Leonardo da Vinci airport, international check-in counters were almost deserted. Milan's two airports, Malpensa and Linate, were also at a virtual standstill, said Claudio Bianco, head of the Malpensa-Linate press office. The strike, organized by Italy's top three unions CGIL, CISL and UIL, is labor's response to conservative Premier Silvio Berlusconi's vow to reform Italian labor laws, some of the most restrictive in Europe. CGIL spokesman Alessandro Valentini said participation was "very high" even in the more conservative north. In many factories, virtually all workers had put down their tools, he said.
Talks with unions that the conservative government had hoped would avert the strike broke down last month. Tensions were aggravated by the slaying of one of the architects of labor reform amid suggestions from Berlusconi's circle that unions fostered a charged atmosphere that contributed to the crime. The killing was claimed by the leftist Red Brigades terrorist group. The main impasse is over a reform that would eliminate rules requiring employers to take back workers found to have been fired for "unjust causes." Employers complain those rules hamper their ability to get rid of unneeded workers. Under the proposed reform, employers would have to pay the workers compensation but not take them back. The government insists the reforms are necessary to make the Italian economy more competitive and attract foreign investment. The unions say the reforms will cost dearly in hard-won job security, widen the gap between rich and poor and undermine Italy's social stability.
Washington March 14, 2002: - A federal grand jury on Thursday indicted the Arthur Andersen accounting firm in the Enron Corp. scandal, the first criminal charges in the nation's biggest bankruptcy. The one-count indictment alleging obstruction of justice came after Andersen spurned a 9 a.m. Thursday deadline to plead guilty to charges stemming from its admitted destruction of Enron-related documents. Andersen said criminal proceedings were tantamount to a "death penalty" against the firm, and it accused the Justice Department of "a gross abuse of governmental power." For a one-month span in October and early November, "Andersen ... did knowingly, intentionally and corruptly persuade" employees to "alter, destroy, mutilate and conceal" documents, the indictment said. Andersen employees "were instructed by Andersen partners and others to destroy immediately documentation relating to Enron and told to work overtime if necessary to accomplish the destruction," said the indictment. Andersen employees engaged in "the wholesale destruction" of Enron-related materials, Deputy Attorney General Larry Thompson said.
The Justice Department brought Andersen under close scrutiny following the accounting firm's admission that it had engaged in massive shredding of Enron-related documents as the energy trading company careened toward bankruptcy last fall. Just before the shredding began, the Securities and Exchange Commission had announced it was conducting an inquiry of Enron. "Tons of paper" were destroyed and a shredder was used "virtually constantly" to handle the contents of dozens of large trunks filled with Enron documents, the indictment said. Now struggling for survival, Andersen was Enron's outside auditor during the years when the Houston-based energy trading company was presenting the public with a bright financial picture that showed billions of dollars in profits. In fact, huge amounts of debt were being kept off Enron's balance sheet through a web of complex partnerships set up by Enron. Chicago-based Andersen one of the Big Five accounting firms blamed employees in its Houston office for shredding Enron-related documents late last October and early in November. Here's more
London March 12, 2002: - While many people remain wary of tall buildings in the wake of the September 11 attacks on New York's World Trade Center, a London council has approved plans to build Europe's tallest building. The 1,004-foot tower, dubbed the "Shard of Glass," will rise 66 storeys above the River Thames in London's borough of Southwark, stealing the title of Europe's tallest building by 23 feet from Frankfurt's Commerzbank AG Tower. New York's World Trade Center's twin towers, destroyed by two hijacked airliners six months ago, stood 1,368 feet tall. London's new tower, which could take five years to build once final planning details have been approved, is budgeted to cost up to $495 million and generate up to 10,000 jobs. Objections had been received from cultural watchdog English Heritage and two other boroughs who complained it would impinge on views from other landmarks and detract from St. Paul's Cathedral. The tower is being designed by award-winning architect Renzo Piano who has previously worked on a range of projects in Osaka, Sydney, Berlin and most recently, the New York Times office building.
New York March 4:- U.S. traded shares of Japanese companies raced higher on Monday after Wall Street's roaring rebound, spurring by growing hopes for economic recovery, helped send Tokyo stocks to six-month highs. ``What investors are probably focusing on is that the U.S. economy and the tech sectors are obviously turning a corner. That is of major importance to Japan because it is still very much an export nation,'' said Michael Lee, head of Asian research at Independence Investment LLC. - A later report - Many Japanese financial institutions are likely to incur losses from the bankruptcy of contractor Sato Kogyo, a Japanese daily reported. According to Tuesday's edition of the Yomiuri Shimbun, monitored in New York Monday, leading financial group UFJ Holdings has announced that the exposure of its UFJ Bank to Sato Kogyo would amount to 26 billion yen ($197.0 million). Daiwa Holdings also announced it expected Asahi Bank, part of Daiwa Holdings, would not be able to recover 14.9 billion yen ($112.9 million) from Sato Kogyo, the paper reported. Sato Kogyo filed for bankruptcy Sunday under the Corporate Rehabilitation Law.
New York March 4, 2002: - Stocks roared higher for a second day, with zealous buyers catapulting the Dow to a seven-month high as its financial components flew. The Nasdaq shot up 3.1 percent and even a heady drop in shares of Oracle couldn't stop the index's bull run. Buying interest quickened in the afternoon, allowing the averages to end right around session highs for a second session. Oracle's grim profit warning didn't temper upside action in the Nasdaq -- a clear sign that tech investors remained in a buying mood. As of Friday's close, Oracle was the fourth most heavily-weighted stock on the Nasdaq 100.
Toronto March 4: - Toronto stocks roared to within a hair of an eight-month high on Monday, riding the momentum of last week's strong economic data as investors put aside balance sheet worries and concentrated instead on a brightening economic outlook. The Toronto Stock Exchange 300 composite index (^TSE - news) closed up 151.00 points, or 1.96 percent, at 7,861.80, recording its biggest one-day point jump since Dec. 5, 2001. ``The economic data certainly solidified the idea that the economy's on the rebound,'' said Jeff Cheah, strategist Standard & Poor's MMS. ``There's a lot of skeptics out there, but we continue to get data reinforcing the view that the economy is a lot healthier than most people think, and stocks are finally paying attention to that,'' he added. All but one of the TSE's subgroups made gains during the session. The tech-heavy industrial products group shot up 4.87 percent, while the safe-haven gold sector was the lone decliner, falling 1.94 percent.
March 4, 2002: - Ex-Enron Treasurer Seeks Deal With Prosecutors, Could Play Key Role in Criminal Investigation Enron Corporation's highest officers didn't really pay much attention to the company's young treasurer, Ben Glisan. They're watching him now. Glisan, fired in November as the energy trading company collapsed in scandal, is trying to strike a deal with federal prosecutors and avoid criminal prosecution by telling them what he knows about other high-ranking Enron executives. Glisan, 36, is known among former colleagues as extremely bright, hard-working and sometimes quick-tempered. He was a key player in several of the partnerships that inflated Enron's profits, disguised debt and enriched executives, including himself.
NEW YORK September 25, 2001: - Consumer confidence plunged in September to its lowest point since early 1996 as this month's terrorist attacks added to Americans' concerns about the already frail U.S. economy, the Conference Board said Tuesday. The New York-based business group said its Consumer Confidence Index sank to 97.6 from a revised 114.0 in August - the largest monthly point drop since the Persian Gulf War. The figure is based on data collected both before and after September 11, when hijackers crashed commercial planes into the World Trade Center and the Pentagon. The Conference Board said in a statement that ``while survey results conducted before and after the terrorist attacks on September 11 differed slightly, there was no reversal in the downward trend of the index.'' Mark Zandi, the chief economist at Economy.com, questioned that interpretation. ``When all is said and done, I'm sure the attack going to be shown undermining confidence,'' Zandi said. ``A bunker mentality is descending on consumers and investors - everyone is battening down the hatches.''
The slide, the largest monthly point drop since October 1990, when it fell 23.0 points, throws even more support behind many economists' predictions that the attacks would tip the already battered U.S. economy into a recession. ``The economy faces tougher times ahead,'' said Lynn Franco, director of the Conference Board's Consumer Research Center. ``While consumers have managed to keep the U.S. out of a recession for several years now, that soon may no longer be the case.'' The markets moved higher following the release of the report, with the Dow Jones industrial average up 41 points to 8,645 and the Nasdaq composite index up 12 points to 1,511. The index, based on a monthly survey of some 5,000 U.S. households, is closely watched because consumer confidence drives consumer spending, which accounts for about two-thirds of the nation's economic activity. The index compares results to its base year, 1985, when it stood at 100. The last time it was this low was in January 1996, when it stood at 88.4. The announcement of tens of thousands of layoffs in the airline industry and uncertainty about the government's response to the attacks have deepened consumers' worries about their jobs, economists said. In fact, the board report found that the percentage of consumers claiming jobs were ``hard to get'' climbed to 18.5 percent in September from 16 percent in August. As a result, they're less inclined to open their wallets. ``We do have to fear fear itself, it matters, it affects consumer spending,'' said Bill Cheney, chief economist at John Hancock Financial Services. ``If people aren't confident, people don't spend and the economy is damaged by that.'' In addition, the attacks have simply saddened many consumers, sapping their urge to shop, he said. ``If people are depressed, their willingness to do anything is going to be affected, which includes going out and spending money,'' he said. The erosion of consistent sentiment is consistent with previous declines that have occurred when a national tragedy destabilizes a troubled economy, the board said in a letter to its members last week.
U.S. economic conditions on Sept. 11 were similar to those at the time of the Oklahoma City bombing in April 1995 and the Iraqi invasion of Kuwait in August 1990. Both events reinforced the downturn in consumer confidence. ``The economic trends already under way before such unprecedented and unexpected events influence greatly the perceptions of individuals and national responses to those events,'' the board said. Nonetheless, the board said it could not predict the length of the current slump.
Washington October 5th, 2001: - Businesses slashed 200,000 jobs last month, the largest cuts in more than a decade, the Labor Department said Friday in a report offering a snapshot of how anemic the economy was even before the terrorist attacks. The overall unemployment rate remained at 4.9 percent, but it is expected to rise sharply when figures are released for the current month. The new report did not reflect job losses related to the September 11 attacks. Since then, more than 100,000 layoffs have been announced in the aviation industry alone. Many economists think the unemployment rate in October could surge to 5.3 percent or higher when layoffs from the attacks show up in government surveys. ``We are going to see a rise in the unemployment rates. That's not in doubt,'' Treasury Secretary Paul O'Neill said.
``You can call those numbers the bin Laden numbers,'' Labor Secretary Elaine Chao said, referring to the man the administration has pinpointed for the attacks, Osama bin Laden. For September, the cut in 199,000 jobs was the largest one-month decline since payroll jobs fell by 259,000 in February 1991, when the country was in the depths of the last recession. Manufacturing jobs again accounted for much of the loss. Factories let go 93,000 workers last month, the 14th straight month of manufacturing job losses. Over that period, 1.1 million workers lost their jobs. Factories making industrial machinery and electrical equipment were particularly hard hit, and accounted for nearly two-fifths of the manufacturing jobs cut this year. ``The job picture looks very grim,'' said Joel L. Naroff, president and chief economist of Naroff Economic Advisors Inc.
Businesses shed jobs last month, but the unemployment rate was unchanged at 4.9 percent. The rate is based on a survey of American households, and a separate survey of businesses showed the sharp reduction in non-farm payroll jobs. Over time, the two surveys generally reflect the same trends. The surveys were conducted the week of the September 11 attacks. But a person was counted as employed even if he only worked one hour during that week. Even if workers were laid off afterward, they would still be considered employed in the report. Many economists, who now think the nation is entering a full-blown recession because of the attacks, predict the jobless rate could climb to 6.5 percent before a recovery begins. Just last year, unemployment had fallen to a three-decade low of 3.9 percent.
``The fallout from the attacks made an already bad situation worse,'' said Dean Baker, an economist for the Center for Economic and Policy Research. Service jobs, where most Americans are employed, showed a rare decline for September, with cuts of 41,000 jobs. The biggest decline in that category was in business services, which includes temporary help agencies. President Bush, whose father was in the White House during the last downturn, is working with Congress to fashion an economic stimulus package of as much as $75 billion. It would be aimed at Americans who lost their jobs after the attacks, and could include extended unemployment benefits and $3 billion in grants.
But Democrats complain that Bush's proposal tilts too much in favor of tax cuts for the wealthy at the expense of laid-off workers. The Federal Reserve cut interest rates on Tuesday for a ninth time, a half-point cut which drove the key rate to its lowest point in nearly 40 years. The biggest economic concern is Americans' confidence. Spending by consumers accounts for two-thirds of total economic activity, and analysts fear they will shut their wallets over worries about layoffs and a war against terrorism.
Washington November 2, 2001: - The nation's unemployment rate soared to 5.4 percent in October, the biggest one-month jump in more than 21 years, providing the most dramatic evidence yet that economic fallout from the terror attacks probably pushed the country into recession. Over 400,000 jobs were eliminated during the month.``It's not good news for America,'' President Bush said, urging the Senate to quickly pass an economic revival package. After meeting with economic advisers, Bush said the September 11 terrorist attacks had not only taken thousands of lives but had also ``threatened the livelihoods of thousands of American workers.'' Widespread job losses catapulted the unemployment rate from 4.9 percent in September to 5.4 percent last month, marking the highest unemployment rate the country has seen since December 1996, the Labor Department reported Friday. Shaken by the report, stocks dropped on Wall Street, raising investors' fears that an economic recovery will take longer, perhaps not occurring early next year as hoped. In the first hour of trading Friday, the Dow Jones industrial average was down 28.37, or 0.3 percent, at 9,235.53, after having surged 188 on Thursday. The 415,000 jobs eliminated during the month represented the biggest cut in payrolls since May 1980. Manufacturing, airlines, travel agencies, hotels, retailers were among those posting big losses. The 0.5 percentage-point advance in October's unemployment rate also was the biggest one-month gain since May 1980.
``Companies are in survival mode and they are cutting jobs to control costs,'' said economist Ken Mayland of ClearView Economics. ``The tragic events of September 11 and their aftermath probably tipped the economy into recession. People are waiting for the other shoe to drop.'' Damage from the attacks could be seen in another report Friday. Orders to American factories tumbled by 5.8 percent in September to $313.1 billion, the lowest level since March 1997, the Commerce Department said. Transportation equipment, including cars, took the biggest hit with orders plunging by 15.8 percent in September. Orders for computers, industrial machinery and household appliances also fell. Economists fear that continued fallout from the attacks, new worries about anthrax in the mail, plunging consumer confidence and rising unemployment in the months ahead, will keep consumers tightfisted, further weakening the economy.
The economy shrank at a rate of 0.4 percent in the July-September quarter and economists are forecasting an even bigger drop in the current October-December quarter. A common definition of a recession is two consecutive quarters of declining economic output. To revive the economy, the Federal Reserve has cut interest rates nine times this year, with two reductions coming after the September 11 attacks. Most economists predict another rate cut at the Fed's next meeting on November 6. Some economists believe Friday's report significantly raised the odds of a bold half-point rate reduction, versus a more conservative quarter-point cut. President Bush, meanwhile, wants Congress to quickly pass a package aimed at stimulating the economy through new tax cuts and increased government spending. Economists are hopeful the Fed's credit easing and the expected adoption of a stimulus package would prevent any downturn from being drawn out and would set the stage for a rebound next year. The latest snapshot of economic activity painted a more grim picture of the nation's labor market than many analysts were expecting. They were forecasting a rise in the jobless rate to 5.1 percent and a loss of around 280,000 jobs during the month.For the third month in a row, total payrolls declined. The loss of 415,000 jobs in October had been preceded by cuts of 213,000 in September and 54,000 in August. Total employment - private companies and government - has fallen by nearly 900,000 since March. Over the same period, employment in the private sector alone dropped by an even bigger 1.2 million. It is the toll of the more than yearlong economic slump the country has been suffering through as well as the attacks on the World Trade Center and the Pentagon. Those attacks temporarily shut down the airlines and the stock market and disrupted business nationwide, resulting in billions of dollars of losses.
Manufacturing has been hardest hit by the economic slump and has been enduring a recession of its own for months. The sector continued to post heavy job losses. In October, another 142,000 jobs were cut, bringing total job losses since March to more than 800,000. To cope with sagging sales, manufacturers have sharply cut back production and shed workers. In the airline industry, employment fell by 42,000 and in the travel sector 11,000 jobs were cut in October. The government said these job losses reflected fallout from the attacks. In the service sector, normally the engine of job growth in the country, employment dropped by 111,000 in October, the fourth and largest decline this year for the industry. Particularly large job losses occurred at hotels and temporary help firms. Retailers lost 81,000 jobs in October, the second large job loss in a row. Retailers, including clothing, toy and gift shops, that normally hire in October for the holiday season failed to add jobs at their normal pace, the government said. Construction companies cut 30,000 jobs in October as builders showed more caution in the wake of the attacks. The jobs report caps a week of dismal economic news. On Tuesday, a report showed consumer confidence plunged to a 7 1/2 year low. A day later, the government said the economy contracted in the third quarter. On Thursday, the government reported consumers cut back on their spending in September by the largest amount in nearly 15 years. The National Association of Purchasing Management on the same day said manufacturing activity had sank to its lowest level since February 1991, when the country was mired in its last recession.
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