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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (2278)	7/1/2002 12:13:55 PM
From: stockman_scott	Read Replies (1) \| Respond to of 3602

Sick beds full to bursting as Enronitis sweeps the States By Heather Tomlinson The Independent 30 June 2002 Enronitis is a vicious, infectious disease – and the health of US capitalism is at risk. Ever since the Enron scandal came to light last year, various strains have cropped up all over the country, in the form of insider dealing, false accounting or fraud. First on the list of suspected patients are energy traders in a similar business to Enron. Although Dynegy briefly tried to rescue Enron from bankruptcy last year, it now has its own problems. Its chairman and chief executive, Chuck Watson, resigned last month following investigations into its accounting practices on a natural gas scheme called "project Alpha", conducted by the the Securities and Exchange Commission, the US regulator. In the same sector, the SEC has ordered Duke Energy to provide information on a controversial method of trading that can inflate financial results. Both companies deny any wrong-doing. More fashionable companies are also suffering from Enronitis. Not only are media and technology groups in the midst of a recession, but their once-sparkling results are being brought into question. US cable TV operator Adelphia Communications has joined cable company NTL in Chapter 11 bankruptcy protection. But Adelphia's tale is more controversial, as the SEC is investigating its accounting practices following the restatement of its accounts for the past two years. The problems relate to a $3.1bn (£2bn) off-balance-sheet loan to the family of John Rigas, Adelphia's founder, who has now resigned. The SEC is also looking at IT solutions provider Peregrine Systems following revelations that up to $100m of revenues were overstated. The accounting policies of software firm Computer Associates and IT security company Network Associates are being investigated, as are those of telecoms company Global Crossing, which is now in Chapter 11 bankruptcy proceedings. Bankrupt discount retailer Kmart is having its accounts looked at, as is Tyco International, an American conglomerate. The SEC is looking at Tyco's accounting policies for acquisitions, and at loans to directors of the company. Ex-boss Dennis Kozlowski is being investigated over claims he bought an $18m apartment on New York's Fifth Avenue with company money, while Tory peer Lord Ashcroft is also under investigation because his wife sold a house in Florida to a Tyco director. But the SEC is not just investigating corporate America: it is hunting rogues down. One of the most sensational of the recent financial scandals dragged US TV cook Martha Stewart into investigations of insider dealing at biotechnology company ImClone Systems. The former chief executive Samuel Waksal, described as a "Manhattan socialite", has been charged with illegal insider trading for allegedly telling family members about bad news on a cancer treatment before it was announced to the stock market. They then sold more than $9m of shares before the rest of the market knew about it, while Mr Waksal tried to sell some shares but was unable to. Ms Stewart also sold a small number of shares but she denies insider dealing and has not been charged. Even a bastion of US entrepren- eurship like Microsoft hasn't escaped. The SEC announced a settlement earlier this month over the alleged mis-statement of income during the 1990s. The SEC said the company's income was sometimes overstated and sometimes understated, although Microsoft neither admitted nor denied this. Executives at three software companies – Quintus, Unify and Legato Systems – face charges of accounting frauds. At Xerox, the photocopier to printer company, the SEC trumpeted its largest-ever fine for a "four-year scheme to defraud investors" that increased its pre-tax earnings by around $1.5bn. Xerox agreed to pay $10m in fines, although it would not admit or deny the allegations. Last Friday it re-stated its accounts. In March, Waste Management founder Dean Buntrock and other former executives were charged with "one of the most egregious accounting frauds we have seen", in the SEC's words, due to "cooked books" in the 1990s. Its auditor at the time, Andersen, was dragged into it, as it allegedly aided the fraud. At US pharmaceuticals retailer Rite Aid, former chief executive Martin Grass and two other directors were recently charged with accounting fraud by the SEC. The company was forced to restate its income by $2.3bn between 1997 and 1999. The SEC alleged "a disturbing picture of dishonesty and misconduct at the highest level of a major corporation" and it is seeking an order to ban the directors from running a public company, as well as the return of their bonuses. Another director losing out is John Gallo, the former president of biotech company IGI. In March the SEC ordered him to return gains from bonuses and stock options following the alleged falsification of inventories for chicken vaccines during the 1990s. But the main victim of Enronitis has been Andersen – auditor to Enron, WorldCom, Global Crossing and Waste Management, among others – which has not only been forced to close but convicted of obstructing justice. After last week's drubbing in the stock markets following the WorldCom revelations, corporate America desperately needs an effective vaccine for its deadly plague of Enronitis. news.independent.co.uk