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

To: Glenn Petersen who wrote (2859)	12/11/2003 7:21:36 AM
From: Glenn Petersen	Read Replies (3) \| Respond to of 3602

Executive in Fraud Case Wins Acquittal Jurors aren't convinced that the former finance chief of NewCom lied and doctored results. latimes.com By E. Scott Reckard and Jean Guccione, Times Staff Writers Dealing a setback to the government's crackdown on corporate fraud, a Los Angeles federal jury Wednesday acquitted a former computer firm executive of charges that he filed inflated financial reports and lied under oath to regulators. Steven C. Veen, who was NewCom Inc.'s chief financial officer, was one of three executives at the defunct Westlake Village company who were indicted in September 2002 in what prosecutors portrayed as a kickoff to President Bush's crusade against white-collar criminals. On that day, FBI agents escorted a handcuffed Veen past TV cameras in a "perp walk." This week, after two days of deliberations, jurors found him not guilty. "Not even this resounding verdict can erase the pain and humiliation that the government's actions caused Steve and his family," defense attorney Marc S. Harris said. "But it's a start." The verdict is the second recent reminder that despite the public outcry over the Enron Corp. accounting fraud and numerous other corporate scandals, it can be difficult to prove beyond a reasonable doubt that executives had the knowledge and criminal intent necessary to send them to prison. In October, former Silicon Valley investment banking star Frank Quattrone's trial on obstruction-of-justice and witness-tampering charges ended with a Manhattan federal jury deadlocked 8 to 3 for conviction. Prosecutors plan to retry Quattrone. In the NewCom case, the firm's former chief executive, Sultan Khan, and former executive vice president, Asif Khan, pleaded guilty in October to fraud and conspiracy. (The Khans are not related.) Veen, who was NewCom's acting CFO when the false quarterly financial reports were filed in 1998, maintained that he had been unaware that the firm was booking tens of millions of dollars in fake sales to pump up its stock price. When the revenue was later reversed on NewCom's books, the market value of the firm's shares plummeted by $140 million. NewCom folded in 1999. Juror Barbara Kilgore of Whittier said the case boiled down to the believability of an interim NewCom CFO, Edward Stoltenberg, who claimed he tipped off Veen to NewCom's problems before Veen signed the reports to the Securities and Exchange Commission. Kilgore said jurors wondered why Stoltenberg hadn't blown the whistle himself to the SEC if he knew about fraud. She also noted that Stoltenberg testified that a third person participated in the meeting at which he supposedly tipped off Veen, but the third party couldn't recall the meeting taking place. The government "definitely proved there was fraud," Kilgore said. "We just didn't feel they proved that Veen knowingly filed anything false." During a five-week trial, defense attorney Harris repeatedly challenged the credibility of prosecution witnesses. He called just one defense witness before agreeing to submit the case to the jury, arguing that other government evidence undercut Stoltenberg's testimony. NewCom was a 1997 spinoff from El Segundo-based Aura Systems, a company with a long history of run-ins with securities regulators. Aura's longtime chief executive, Harry Kurtzman, quit in 2002 as the SEC was preparing accounting fraud charges against him, Veen and the Khans. Veen, a certified public accountant, had been Aura's CFO under Kurtzman as well as CFO at NewCom. In June 2002, Veen settled an SEC civil suit charging him with knowingly or recklessly overstating revenue at both companies. Veen, who didn't admit or deny guilt, was fined $50,000 and was banned for five years from acting as an officer or director of a public company. In the criminal case this week, jurors acquitted Veen of two counts of knowingly signing false quarterly reports and one count of lying during testimony to the SEC in 1999 about the fake sales and other accounting problems. Outside of the courtroom Wednesday, Harris characterized his client as vindicated by the "swiftness and totality of the verdict," which he said sends this message to federal officials: "They had better be careful about casting the net too widely in those cases." Assistant U.S. Attys. Pamela L. Johnston and Michael R. Wilner, who prosecuted the case, said they would try it again if they had a chance despite the fact that, as Johnston put it, "the jury took a different view of the evidence than we did and felt we did not meet the heavy burden of proof in criminal cases." "We don't shy away from the difficult cases," Wilner said. "Especially in this era when investors can lose their life savings by investing in the companies where fraud occurs."

To: Glenn Petersen who wrote (2859)	1/20/2004 11:15:47 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 3602

HealthSouth Fraud Larger Than Estimate story.news.yahoo.com By Jed Seltzer NEW YORK (Reuters) - HealthSouth Corp. (Other OTC:HLSH - news) said on Tuesday its massive accounting fraud was much larger than earlier estimates and may have exceeded $4 billion. Officials for Alvarez & Marsal, restructuring specialists hired to turn around the scandal-ridden operator of rehabilitation and surgical centers, said at a financial update meeting in New York that the total amount of fraudulent entries in HealthSouth's accounting ledgers totaled between $3.8 billion and $4.6 billion. That compares with an estimate last July that the company would have to adjust its balance sheet downward by $2.5 billion and prosecutor allegations that the fraud was $2.7 billion. But restructuring officials said on Tuesday the company expects to generate revenue of nearly $4 billion in 2004, signaling a rebound from the scandal, which led to criminal charges against 16 former executives. Alvarez & Marsal officials believe the company will remain financially viable and healthy despite expenses and adjustments related to the scandal. HealthSouth, based in Birmingham, Alabama, expects $650 million in 2004 earnings before interest, taxes, depreciation and amortization, or EBITDA, one measure of a company's profitability. Bryan Prewitt, an investor who holds 205,000 shares of HealthSouth and a principal of Zimmer Park Advisors, praised the turnaround efforts since the company met cash flow forecasts and remedied a default on its convertible bonds. However, Prewitt noted that "the euphoria got a little bit ahead of itself" regarding the share price, which closed at $5.93 on the Pink Sheets. The price is far above the 10-cent low reached shortly after the accounting scandal surfaced last March and is even higher than the price before the fraud was disclosed. "By the end of the second quarter, this company should be doing business as usual," said Guy Sansone, HealthSouth's acting chief financial officer and a partner at Alvarez & Marsal. At that point, HealthSouth should have a new permanent management team and a restructured balance sheet, and it should have made progress in its dealings with regulators, Sansone said. Forensic accountants have determined that the earnings between 1992 and 2003 were overstated by $2.5 billion because of fraudulent entries, $500 million from improper acquisition accounting and somewhere between $800 million and $1.6 billion from aggressive accounting, Sansone said. The bulk of the fraud appears to have been conducted between 1999 and 2002 to inflate earnings in order to meet Wall Street estimates, Sansone said. During that period, the company's weakened share price after Medicare changes made it difficult to buy companies. Federal accounting fraud allegations in March 2003 triggered an "adverse material change" clause that froze the company's credit line and prevented the company from repaying a convertible bond that matured on April 1, landing it in default. Last Friday, HealthSouth said Credit Suisse First Boston arranged a $355 million loan that allowed the company to repay the defaulted bond. HealthSouth's presentation to investors is the first since July 7, when company officials said it was likely to avoid bankruptcy, calming investors after the company and its executives were accused of accounting fraud. HealthSouth is current on all of its payments under its borrowing agreements that cover more than $3 billion of debt. HealthSouth, its former bankers including investment bank UBS AG (UBSN.VX) and its former auditors Ernst & Young face a class-action lawsuit from shareholders and bondholders. Fifteen former executives have pleaded guilty to taking part in the fraud scheme, and HealthSouth founder Richard Scrushy is facing criminal charges in the case. Alvarez & Marsal officials said HealthSouth is working with the U.S. Centers for Medicare and Medicaid Services and the Securities and Exchange Commission (news - web sites), which are investigating the fraud. The company hopes to reach a global settlement with the Medicare office covering all potential wrongdoing. HealthSouth perpetrated its fraud essentially by inflating the amount it was receiving from the Medicare program for the elderly and disabled. HealthSouth expects to complete and submit its revised financial statements in the first quarter of 2005, which would end a long process of getting to the bottom of the real financial health of the company and the extent of the fraud. (Additional reporting by William Borden)