CEOs Face Arrests, Lawsuits, Dismissals.
Consumer's Union Slams Deregulation
dailyenron.com
The Gang That Couldn't Manage Straight
JUNE 12: It seems that every morning's paper now heralds the arrest of another former corporate titan. This morning's offering to investor wrath was Sam Waksal, the former CEOof ImClone Systems Inc. Sam was arrested this morning by the FBI on insider trading charges.
Those executives not getting arrested find themselves under intense investor scrutiny. Those found wanting are being shown the door in record numbers. Last month alone there were 80 CEO "departures," according to outplacement firm Challenger Gray & Christmas.
Enron's collapse also awakened corporate boards of directors from their decade-long slumber. With news of Enron's board members getting sued by investors and images of them being grilled on TV by Congress, directors are calling in corporate executives and demanding straight answers. When those answers don't add up, executive heads are hitting the boardroom floor with a thud.
Last week it was Dennis Kozlowski's head that rolled. The former CEO of 277,000-employee Tyco International "resigned." The move came after Tyco's board was visited by New York state detectives investigating their CEO for sales tax evasion in New York. (Kozlowski was indicted shortly after his resignation last week on 11 felony counts, each punishable by up to four years in prison.).
Other recently departed former CEO darlings of Wall Street include John Rigas of Adelphia Communications, Bernard Ebbers of WorldCom, Steve Gardner of Peregrine Systems, Charles Conaway of Kmart, Joseph Berardino of Andersen and of course, Kenneth Lay and Mr Jeffrey Skilling of Enron fame.
So, you might wonder, what's going on here? Is this some kind of sociological sea-change within the corporate culture?
No, there's nothing new going on here. What we are seeing is just the latest reminder that, while Congress can repeal laws regulating certain industries, they cannot repeal the laws of human nature. Put enough people in positions where they can make easy money by cheating, lying and stealing, then remove outside oversight and a percentage of those people will succumb.
And, while the percentage who turn to the dark side might be small, the damage they can do within a free-market economy is enormous. In the 1980s probably fewer than 5% of all savings and loan owners were crooks, but those few used deregulation to bilk US taxpayers out of nearly half a trillion dollars. That industry was regulated and has been doing well ever since.
Conservatives that brought us savings and loan deregulation were among the same who, less than a decade later, pushed energy deregulation. And, now we know, the results have been much the same. Only this time it's not taxpayers, but investors, workers, and pensioners who will pay the price.
Which brings us to our second item today.
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July Report Gives Deregulation a Failing Grade
This week the non-partisan Consumer's Union ripped the curtain back on deregulation and what they discovered was a far cry from the promised land of abundance, high quality, low prices and better than great customer service.
Instead, what CU says it found was that "broken promises, deceptive marketing, and dreadful service have become accepted business practices in an increasingly Wild West marketplace."
Energy deregulation is one of the areas explored in CU's July 2002 report. California ratepayers, the report points out, were among the first to discover that whatever small rate cuts resulted initially from that state's deregulation were dwarfed by the subsequent $10 billion in rate jumps and lost productivity caused by market manipulation and fraud by energy companies like Enron.
"Such shabby treatment stems in part from an economic experiment begun in the 1970s: deregulation," Consumer Union concluded. "It was supposed to cut prices, expand choice, enhance service-improve your life. So how come you're not smiling?"
Consumer's Union suggests that ratepayers worried about their state's energy deregulatory policies should visit the Energy Information Administration web site www.eia.doe.gov to determine if their state is deregulated, or heading that way. The site also provides links to information and to state public-utility-commission web sites.
The full text of the Consumer's Union eport can be accessed free online at:
consumersunion.org
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Enron's Fired workers to get up to $13,500
Former Enron Corp. employees have reached a tentative agreement that could more than double the severance that some of the laid-off workers already have received. Under the proposed agreement, former workers who already have received $5,600 in severance could get an additional $7,900.
Not everyone is happy with the agreement, and some former employees are refusing to accept it. Those who decide to reject the severance package in order to preserve their right to future legal action will receive no additional payment.
For those who do sign, the agreement will result in two payments. The first payment would be for $2,000 and should arrive within 30 days of the court's approval.
The additional $7,900 that Enron's out-of-work employees receive would not be enough to buy many of the expensive castoff furnishings being sold off at Linda Lay's "Jus' Stuff' secondhand store. Linda, the wife of former Enron CEO Ken Lay, opened the little shop in a Houston suburb to unload surplus furnishing from the couples three Aspen, Colorado homes which they sold shortly after Enron's collapse.
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Lieberman Wants the Full Story
Senator Joe Lieberman does not ascribe to the theory that half a loaf is better than none. The head of a Senate panel investigating Enron asked for all White House documents showing administration contact with Enron executives. In response to two subpoenas Lieberman received about 2,500 pages of documents.
Now, he wants to know just when the White House is going to cough up the rest.
The Senate Governmental Affairs Committee "needs production to be complete soon" so it can complete its Enron investigation, chairman Joseph Lieberman, D-Conn., said in a letter Monday to the White House counsels for President Bush and Vice President Dick Cheney.
Lieberman also now wants details relating to the gathering of the documents, including the status of questionnaires that White House attorneys had asked employees to fill out.
"The committee is trying hard to work with the White House in pursuit of our Enron investigation," Lieberman wrote. "However, we must balance your requests for accommodations with the committee's need to conduct its inquiry."
Obtaining the documents the committee needs to begin its investigation has been like getting information on weapons of mass destruction out of Iraq. The White House refused earlier requests out of hand and only began to produce documents when Lieberman used his committee's subpoena powers last month.
Lieberman's committee voted along party lines to issue Congress' first subpoenas to the Bush White House. Republicans on the committee supported White House attempts to block access the documents. There were at least 60 Enron-related meetings and phone calls involving presidential aides.
It had already been learned that Enron chairman Kenneth Lay made a series of telephone calls to members of the Bush Cabinet, including Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans, as the company sank toward collapse last fall.
The General Accounting Office, Congress' investigative arm, sued Cheney in February to force release of the names of figures from Enron and other oil companies who met last year with the vice president's energy task force.
Quote of the Day
"Efforts at avoidance and evasion of (corporate) tax liability are so widespread and so amazing both in their boldness and ingenuity that further action without delay seems imperative."
Henry Morgenthau's 1937 memo to President Franklin Roosevelt regarding offshore corporate tax avoidance. Henry Morgenthau Jr. was Roosevelt's Treasury Secretary. Henry is the father of current New York City's 82-year old corporate crime fighting District Attorney, Robert Morgenthau.
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