The Corporate Scandal Sheet Penelope Patsuris, 08.26.02, 5:30 PM ET NEW YORK - With the avalanche of corporate accounting scandals that have rocked the markets recently, it's getting hard to keep track of them all--but our Corporate Scandal Sheet does the job. Here we'll follow accounting imbroglios only--avoiding insidertrading allegations like those plaguing ImClone, since chronicling every corporate transgression would be impractical--and our timeline starts with the Enron debacle.
When Scandal Investigatin Company Allegations Went g Agencies Public Founding Rigas family collected $3.1 billion in offbalance-sheet SEC; Adelphia loans backed Pennsylvani Communicatio April by Adelphia; a and New ns (otc: ADELA 2002 overstated York federal - news - people ) results by grand juries inflating capital expenses and hiding debt. As the ad market faltered and AOL's purchase of Time Warner loomed, AOL inflated sales AOL Time by booking Warner (nyse: July 2002 barter deals SEC; DOJ AOL - news and ads it people ) sold on behalf of others as revenue to keep its growth rate up and seal the deal. AOL also boosted
Latest Developments
Company Comment
Three Rigas family members and two other ex-executives have been arrested Did not for fraud. The return company is suing repeated the entire Rigas calls for family for $1 comment. billion for breach of fiduciary duties, among other things. Fears about the inquiry intensified when the DOJ ordered the company to preserve its documents. AOL said it may have No overstated revenue comment. by $49 million. New concerns are afoot that the company may take another goodwill writedown, after it took a $54 billion charge in April.
sales via "round-trip" deals with advertisers and suppliers. Shredding documents related to audit client Novembe Enron after r 2001 the SEC launched an inquiry into Enron Andersen was convicted of obstruction of justice in June and will cease auditing public firms by Aug. 31. Andersen lost hundreds of clients and has seen massive employee defections.
Arthur Andersen
SEC; DOJ
Did not return repeated calls for comment.
Inflated its 2001 revenue by $1.5 billion by "channel Efforts to get stuffing," or inventory back to forcing Bristol-Myers acceptable size Squibb (nyse: wholesalers July 2002 SEC will reduce BMY - news to accept earnings by 61 people ) more cents per share inventory through 2003. than they can sell to get it off the manufacturer' s books SEC; CFTC; Houston Executing Appointed Thomas U.S. "round-trip" J. Webb, a former attorney's trades to Kellogg's CFO, as CMS Energy May office; U.S. (nyse: CMS artificially its new chief 2002 Attorney's news - people ) boost energy financial officer, Office for trading effective in the Southern volume August. District of New York Engaged in SEC; CFTC; The company says Duke Energy July 2002 (nyse: DUK 23 "roundHouston an internal
Bristol will continue to cooperate fully with the SEC. We believe that the accounting treatment of the domestic wholesaler inventory buildup has been completely appropriate.
No comment.
Although the effect [of
news - people )
trip" trades to boost trading volumes and revenue.
U.S. attorney's office; Federal Energy Regulatory Commission
investigation concluded that its round-trip trades had "no material impact on current or prior" financial periods.
Dynegy (nyse: DYN - news people )
May 2002
Currently conducting a reaudit. Standard & Executing Poor's cut its credit "round-trip" SEC; CFTC; rating to "junk," trades to Houston and the company artificially U.S. said it expects to boost energy attorney's fall as much as trading office $400 million short volume and of the $1 billion in cash flow cash flow it originally projected for 2002. Executing "round-trip" trades to artificially boost energy trading volume Oscar Wyatt, a major shareholder and renowned wildcatter, may be engineering a management shakeup.
El Paso (nyse: EP - news people )
May 2002
SEC; Houston U.S. attorney's office
these trades] on the company's financial statements was immaterial, we consider improper trades in conflict with the company's policies. To address this we have made changes to our organization, personnel and procedures. Dynegy believes that it has not executed any simultaneous buy-and-sell trades for the purpose of artificially increasing its trading volume or revenue. There have been no allegations or accusations, only requests for information. The company has confirmed in
multiple affidavits that it did not engage in "round-trip" trades to artificially inflate volume or revenue. Boosted profits and hid debts totaling over $1 billion by improperly using off-the- DOJ; SEC; books FERC; partnerships; various manipulated congression Enron (otc: October the Texas al ENRNQ - news 2001 power committees; - people ) market; Public bribed foreign Utility governments Commission to win of Texas contracts abroad; manipulated California energy market
Ex-Enron executive Michael Kopper pled guilty to two felony charges; acting CEO Stephen Cooper said Enron may face $100 billion in claims No and liabilities; comment. company filed Chapter 11; its auditor Andersen was convicted of obstruction of justice for destroying Enron documents.
Company filed Engaged in Chapter 11; network Hutchison capacity Telecommunicatio "swaps" with ns Limited and DOJ; SEC; other carriers Singapore Global various Crossing (otc: February to inflate Technologies No congression GBLXQ - news 2002 revenue; Telemedia will pay comment. al - people ) shredded $250 million for a committees documents 61.5% majority related to interest in the firm accounting when it emerges practices from bankruptcy; Congress is
examining the role that company's accounting firms played in its bankruptcy. Improperly booked $100 million in annual construction SEC cost overruns before customers agreed to pay for them. Legal watchdog group Judicial Watch filed an accounting fraud lawsuit against Halliburton and its former CEO, Vice President Dick Cheney, among others. Halliburton follows the guidelines set by experts, including GAAP (generally accepted accounting principles).
Halliburton May (nyse: HAL 2002 news - people )
Homestore.com January (nasdaq: HOMS 2002 - news - people )
Inflating sales by booking barter SEC transactions as revenue.
The California State Teachers' Retirement pension fund, which lost $9 No million on a comment. Homestore investment, has filed suit against the company.
Kmart (nyse: KM - news people )
Merck (nyse: MRK - news people )
Anonymous letters from people claiming to SEC; House be Kmart Energy and employees Commerce allege that the Committee; January company's U.S. 2002 accounting Attorney for practices the Eastern intended to District of mislead Michigan investors about its financial health. Recorded $12.4 billion July 2002 None in consumerto-pharmacy
The company, which is in bankruptcy, said the "stewardship review" it promised to complete by Labor Day won't be done until the end of the year.
Did not return repeated calls for comment.
The SEC approved Medco's IPO registration, including its sales
Our accounting practices accurately
reflect the results of Medco's business and are in accordance with GAAP. Recognizing retail copayments has no impact on Merck's net income or earnings per share. This is an informal The company An internal review inquiry, and said it may Mirant (nyse: revealed errors that we will have MIR - news July 2002 SEC may have inflated cooperate overstated people ) revenue by $1.1 fully with various assets billion. this request and liabilities. for information. Our focus now is to stabilize this Independent Nicor Energy, venture and LLC, a joint audit put some venture between uncovered Nicor restated certainty to Nicor (nyse: accounting results to reflect its financial GAS - news July 2002 problems that None proper accounting results. The people ) and boosted in the first half of company is Dynegy (nyse: revenue and this year. evaluating its DYN - news underestimate continued people ) d expenses. involvement in this venture. Overstated Said it will restate We have $100 million results dating back been and will SEC; Peregrine in sales by to 2000; slashed continue to various Systems May improperly nearly 50% of its cooperate (nasdaq: congression 2002 recognizing workforce to cut with the SEC PRGNE - news al revenue from costs; is on its third and the people ) committees third-party auditor in three Congression resellers months and has yet al
co-payments that Merck never collected.
accounting. The company has since withdrawn the registration for the IPO, which was expected to raise $1 billion.
to file its 2001 10- committee. K and so, consequently, is in danger of being delisted from the Nasdaq. Qwest admitted that an internal review found that Inflated it incorrectly revenue using accounted for We are Qwest network DOJ; SEC; $1.16 billion in continuing to Communicatio capacity FBI; Denver February sales. It will restate cooperate ns "swaps" and U.S. results for 2000, fully with the International 2002 improper attorney's (nyse: Q - news 2001 and 2002. To investigation accounting office - people ) raise funds, Qwest s. for long-term says it is selling its deals. phone-directory unit for $7.05 billion. Recently replaced Chief Financial Engaging in Officer Steve We're "round-trip" Naeve with Mark cooperating Reliant Energy May trades to (nyse: REI SEC; CFTC M. Jacobs, a with the 2002 boost trading news - people ) managing director investigation volumes and of Goldman Sachs s. revenue. and a Reliant adviser. Ex-CEO L. Said it will not Dennis certify its financial The Kozlowski results until after company is indicted for an internal conducting tax evasion. investigation is an internal SEC completed. The investigation investigating Bermuda-based and we Manhattan Tyco (nyse: whether the company is not cannot May district TYC - news company was required to meet comment on 2002 attorney; people ) aware of his the SEC's Aug. 14 its specifics, SEC actions, deadline. Investors but we will possible looking to unseat file an 8-K improper use all board members on the initial of company who served under results funds and Kozlowski may around Sept. related-party launch a proxy 15. transactions, fight to do so.
as well as improper merger accounting practices. The company stunned the Street when it found another $3.3 billion in Overstated improperly booked cash flow by funds, which will DOJ; SEC; booking $3.8 bring its total U.S. billion in restatement up to Attorney's WorldCom is operating $7.2 billion, and Office for continuing to expenses as that it may have to the Southern cooperate capital take a goodwill District of with all expenses; charge of $50 New York; ongoing gave founder billion. Former various investigation Bernard CFO Scott congression s. Ebbers $400 Sullivan and exal million in offcontroller David committees the-books Myers have been loans. arrested and criminally charged, while rumors of Bernie Ebbers' impending indictment persist. We chose to settle with the SEC in April so we can put the Falsifying matter financial Xerox agreed to behind us. results for pay a $10 million We have five years, SEC and to restate its restated our boosting financials dating financials income by back to 1997. and certified $1.5 billion our financials for the new SEC requirements .
WorldCom (nasdaq: March WCOEQ - news 2002 - people )
Xerox (nyse: XRX - news people )
June 2000