enron_ Global Crossings_and Tyco

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In addition, Enron also offered to do the same with gas by buying and selling tomorrowÆs gas at a fixed price today. It appeared to make sense to many suppliers and industry consumers who took up the offer, in the deregulated energy world. The new Enron was emerging. Just in a few short years, Enron became such a massive player in the United States energy market, controlling at its height a quarter of all business. After countless success, the company went on to create markets in numerous energy related products. The ever known philanthropist, Enron began to offer companies opportunities to avoid the risk of adverse price movements in a range of commodities including steel and coal. In 2000 Enron began with a plan to shift their interest to broadband internet networks and trade bandwidth capacity as the dot.com economy flourished. EnronÆs self-motivated ideas, joined with its reputable oldeconomy energy background, any seems to fascinate investors and the stock prices skyrocketed. To show the public how innovative the organization they were at the time. Enron became one of the first amongst energy companies to begin trading through internet, offering a free service that attracted a vast amount of custom. However, while Enron exaggerate about the value of products that it bought and sold online, with self-proclaim earning of $880 billion in a couple of years, while the company remained silent about these trading stipulation operations were actually making any money. In order for Enron to keep their share prices high it maliciously use sophisticated accounting techniques, raise investment against it own assets and stock and maintain the impression of a highly successful company. Furthermore, Enron was also legally removing losses from its books if it passed these ôassetsö to an independent partnership. Even investment money that was received from new partnerships allocated towards as profits although when the funds were for new projects or other business ventures. One of the partnership deals was to invest its fun into Blockbuster videos by broadband connections. The proposal of the deal fell through, but Enron had already posted some $110 million venture capital as profit. In the summer of 2000, shares of Enron had hit its all time high of more than $90 a share, but it was under a lot of discrepancy. California was hit hard with energy crisis during that summer and blamed by many on its poor handling of deregulation. Many critics accused Enron of take advantage of the situation by buying futures in electricity supplies and passing them on at higher mark-up costs. Enron downplayed the accusation saying it was merely the market-maker. On its 2000 annual report, Enron reported that its global revenues of $100 billion and their income had risen by 40% in three years. On the contrary, reality is that its real revenue would fell short if it had not been for the special partnerships that its CFO Andrew Fastow had established. The growth of Enron began increasingly dependent on these accounting tools where Enron make the investments and then shifted the debt off its books to its ôso calledö independent partnerships. In return it will create prospected earnings that would safeguard future losses. Meanwhile, the political donations continue to pour and majority of the contributions was made by Ken Lay himself. In early 2001, Enron and Ken Lay each made a large contribution towards incoming President BushÆs inaugural committee fund. In addition, the President invited Ken Lay to become and advisor to his transition team. With the new presidentÆs planned energy policy review which is administered by Vide-President Dick Cheney and it concerns Enron. Before EnronÆs review on May 17, 2001, EnronÆs executives and Mr. Cheney and team met three times during the first half of the year before Cheney issue his report. As suspected, the review did rule in favor to the energy industry and the report did advocate that there will be more power stations, more exploration and a national grid. Enron was not satisfied with the vice-presidentÆs report yet good news for Enron. Moreover, the same year of February, Jeff Skilling became EnronÆs CEO with Ken Lay remains as its chairman. In the wake of the dot.com deflation and energy price volatility EnronÆs stock begun to drop. Furthermore, EnronÆs auditors, Arthur Andersen, held a private meeting stating their concerns about EnronÆs special partnerships and the full implications of moving money, stock and assets backwards and forwards in incredibly complicated deals. For the partnerships to work financially and on a basis of accountability to share holders, they had to be sufficiently independent of Enron. Yet Enron had two partnerships, LJM1 and LJM2, which its operations controlled by Enron executives. Entities were dealt with more than 20 complicated contracts running to hundreds of millions of dollars. Executives who were running the partnership scarf millions of dollars from the arrangements. By March, Enron encounters more problems as its share price continued a downwards trend towards $50. With the Blockbuster internet approved, it wasnÆt clear whether or not that the company will suffer a crucial financial blow from it. Even in India, Enron lost their only customer for its massive and controversial Dabhol power plant project, known as the largest foreign investment in the country. In May, on of Enron executives Clifford Baxter left the company in uncontroversial circumstances, but it has rumor that Baxter and Skilling had some disagreement over the propriety of some of the partnership transactions. On August 2001, Jeff Skilling unexpectedly resigned as CEO of Enron and Ken Lay became chief executive once again. After Skilling resigned, an executive who knew Baxter voice his concerns to Ken Lay that Enron was on the verge of ôimplodingö. While the development was shock to investors who suddenly began to fear that their Brady Bunch company in Houston was not so perfect. Investors sold millions of shares, that plummet stock price under $40 a share and Ken Lay downplay that there were ôno issues.ö But the worse is to come that the board was not fully aware of. EnronÆs vice president, Sherron Watkins, wrote an anonymous letter to Ken Lay with concern that scandal will surface. This will simply disclose that EnronÆs accounting process was fraudulent and its brilliant effective partnerships appeared to be the problem. This had created a huge hole in the accounts and opens the company onto scrutiny. As Sherron Watkins became increasingly worried and decided to seek outside of Enron for help. She contacted a former colleague and audit partner at Andersen, where he contacted the Enron audit team at the company. After reading WatkinsÆ concerns, Andersen executives including chief Enron auditor David Duncan, decided that it is best to consult their lawyer whether the partnership were legal or not. Watkins voice her concerns and Ken Lay reassure the market that he was doing all he could do to ôrestore investor confidenceö he told staff and shareholders. In contrast, Ken Lay himself sold 83,000 shares worth almost $2 million. The magnitudes of EnronÆs problems were beginning to be too much for Andersen because Enron had hedged against its own stock, where it could never recover its losses while its share price was falling. Andersen informed Enron that it had no other choice but to change the way it was accounting for its special partnerships. On October 12, 2001, an Andersen lawyer contacted a senior partner in Houston to remind him that company policy was not to retain documents that were no longer needed. After the lawyer recommendations, staff in AndersenÆs Houston office began shredding documents relating to Enron. While at the same time, EnronÆs internal legal examination of Sherron WatkinsÆ concerns concluded that the partnerships in question, Raptor and Condor had been approved by Andersen. Stock slid nearly two-thirds lower than a year earlier to $33 a share and executives took the lost and fess up to their mistakes. Enron then tried to consolidate the complicated outside partnership within the companyÆs main accounts and it had dramatically altered the strength of the company. On October 16, 2001, Enron announced its massive first quarter loss in nearly four year of $618 million. The next day, Enron state that its quoted assets would be slashed by over $1 billion because of ôerrorsö in the method that it had accounted for the Raptor special partnership. Enron claimed that the value of shares fell by $1.2 billion as the company repurchased stock already issued in the complicated schemes. Staff panic and tried to sell their stock, but EnronÆs final decision was to block employees from selling stock in their pension plan. After the hiatus, trading reopened and Enron issue another surprise announcement which trigger Wall StreetÆs watch day, the Securities and Exchange Commission who opened investigations into a potential conflict of interest between the company, its directors and the special partnerships. With shares slipping down to $26 a share, the announcement loses another 20% off the price and cause investor flight and severely reduces the once energy giant of survival. In order to restore investorsÆ confidence, Ken Lay releases CFO Andrew Fastow, but stock plunge to $15. With the empire immense of collapsing, the truth of its fraudulent accounting practices of its financial partnership and contracts were only just revealed. On October 26, 2001, things were looking desperate for Ken Lay so he made a series of telephone calls to Washington for help. First he made a call to Alan Greenspan, head of Federal Reserve. After a couple of days, he spoke to the Treasury Secretary Paul OÆNeil, reportedly in a failed attempt to garner support ahead of an appeal to creditors, Finally he tried Commerce Secretary Donald Evans, a Texas oil millionaire himself and found himself lonely position at the top of a crumpling mountain with no help on the way. Following EnronÆs series of scandals relating devious accounting practices surrounding itself by fraud involving Enron and its accounting firm Arthur Andersen, in which, both stood at the verge of undergoing the largest bankruptcy in history by mid November 2001. During 2001, Enron shares fell from over $90 a share to $0.30 as share as Enron was considered a blue chip stock. Despite the impending doom, Ken Lay found two banks willing to extend credit. November 8, 2001, the company took the highly unusual moved of restating its profits for the past four years. This was an unprecedented and a devastating event in the financial world. Enron finally admitted that much of its profit and revenue were the result of deals with special purpose entities. The result of this was that many of the losses that Enron suffered were not reported in its financial statements. While an effort of a white knight rescue was attempt by smaller energy company, Dynegy, but it was not feasible. The final blows came towards the end of November 28th 2001 Enron was left fighting for its corporate life after the major credit rating agencies issuing it junk-bond status. The announcement meant that Enron was immediately liable for almost $4 billion of its $13 billion debt. Dynegy withdraw its interest of the merger and the shares, 90% down on October, crashed below the $1 mark and was meant to be the corporate disintegration. One of the biggest company collapse in American history was virtually complete, thousands of jobs gone, billions of dollars in shares disappear and worthless. Aftershock of the demised giant was shown throughout companies all around the world. The following day, the SEC says that it was including Andersen in its investigation. A shockwave will be felt if a major company crash and deeply felt, but nothing will measure up to how the failures of Enron have led to the kind of investigations and its managers now face. In February, 2002 the company opened its own internal investigation into the crash. William Powers, the academic who chaired the report, didnÆt pull any punches when he pinned the blame firmly on executives who had personally benefited from the partnerships to the tune of millions of dollars. Congress continued hearings began in December as America and investors around the world demanded answers. Four of EnronÆs most senior executives pleaded Fifth Amendment protection against self-incrimination and refuse to testify: Andrew Fastow, Richard Buy, Michael Kopper and Ken Lay. Jeff Skilling did testify but insisted that he knew nothing of the complex web of intra-company deals that are almost impossible for ordinary investors to unravel. Global Crossings Global Crossing Limited is a telecommunications company that provides computer networking services worldwide. It maintains a large backbone and offers transit and peering links, VPN, leased lines, audio and video conferencing, long distance telephone, managed services, dialup, colocation and VoIP, to customers ranging from individuals to large enterprises and to other carriers. The main emphases are on higher margin layered services like managed services and VoIP with leased lines. Global Crossing is a tier 1 carrier. The company is legally domiciled in Bermuda, although its administrative headquarters are in New Jersey. Global Crossing was founded by Gary Winnick and three business associates in 1997 through Pacific Capital Group, Winnick's personal venture group that had experienced mixed results in its twelve year history. From 1997 until 2002, Winnick held the title of chairman; Lodwrick Cook, former CEO of Atlantic Richfield Company (ARCO), was hired by Winnick in 1998 as cochairman. John Scanlon became Global Crossing's first chief executive officer the same year. In what would become a trend with Global Crossing's chief executives, Scanlon's leadership was short-lived, and in February of 1999, he was replaced by Robert Annunziata, who had resigned his position as president of AT&T's business services group to ôbuild a company from start to finish.ö Annunziata oversaw the rapid expansion of the company, including the purchase of Frontier Corp. at a cost of $11.2 billion and the $850 million purchase of Global Marine. After only a year though, in March, 2000, Annunziata resigned. During his time as CEO, Global Crossing had gone from a medium-sized company of about 150 employees to an international giant with over 14,000 employees. Taking over as CEO, Leo Hindery, another AT&T executive, had joined the company a few months earlier as head of its webhosting division, GlobalCenter. Hindery took the helm at a critical turning point for the company. In March, the month Hindery assumed command, Global Crossing's stock had reached a high of $61 per share. A month later, however, the stock price had fallen to just $25 a share. The company's filing for an offering of $2.5 billion in common and convertible preferred shares was cut in half. Many of the original investors bailed out at that time as well, cashing out most or all of their holdings for astounding gains. Gary Winnick, who continued with his company, himself made another $260 million at the April, 2000 stock offering. CEO Hindery projected the company would be cash-flow positive by early 2002, but two months later, in October, 2000, he quit, submitting his resignation after just seven months with the company. This took place after the sale of the GlobalCenter division to Exodus Communications, in a deal in which Hindery made $251 million. He was replaced by Thomas Casey, a forty-eight year old lawyer who came to Global Crossing from Merrill Lynch, where he was co-head of the global telecom investment banking group. Prior to that time, Casey had worked as an attorney for the Federal Communications Commission and the Department of Justice. Reports by individuals close to the company to the media suggested conflicts and power-struggles between Mr. Winnick and CEOs Annunziata and Hindery. By this time, the finance world was losing confidence rapidly, and Global Crossing's stock price continued to fall, hitting five dollars a share by November, 2001. On December 20, it was revealed that Asia Global Crossing had requested $400 million from a credit line granted at its spinoff in 2000 by Global Crossing. Global Crossing refused to fund the line and a month later, in January, 2002, the company filed for Chapter 11 bankruptcy protection and its assets were ultimately sold to Asia Netcom, a subsidiary of China Netcom. At the same time, a letter of intent was filed by Global Crossing to sell control of the company, seventy-nine percent, to a joint venture between Hong Kong-based Hutchison Whampoa and Singapore Technologies Telemedia. Global Crossing's bankruptcy filing listed total assets of $22.4 billion and debts amounting to $12.4 billion. If ranked by assets, Global Crossing's bankruptcy is the fourth largest filing in American history. The collapse of Global Crossing calls into question, how much confidence employees, investors, and the public should have in financial information that's released by companies, particularly the pro forma financial projections. Since these pro forma statements are not required to use Generally Accepted Accounting Principles, known as GAAP Principals or GAAP Accounting, a company such as Global Crossing can massage the numbers on these pro forma financial statements, or, in other words, these pro forma statements can provide an easy opportunity to cook the books. In the case of Global Crossing, the company's pro forma statements may have misinformed investors and employees as to the profitability and performance of the company. In an examination of Global Crossing's filings submitted with the SEC, the company reported an additional $531 million in earnings in the pro forma statement, pumping up earnings by nearly 50 percent as the result of controversial swaps activities. However, the $531 million was not included in the company's GAAPcompliant statement of earnings. Why not? Because under present required disclosure regulations, it didn't exist. It wasn't required to exist. Global Crossing's rapid rise and fall attracted tremendous attention and it was quickly revealed that the company, particularly its executives, lavishly spent money on ôthemselves and their digs.ö Four of Global Crossing's CEOs received at least $23 million in personal loans from the company, some of which were forgiven entirely even when bankruptcy was becoming a greater possibility. These same CEOs also received over $13.5 million in after-tax signing bonuses along with lucrative stock options. Between 1998 and 2001, Winnick sold approximately $420 million in Global Crossing stock. Other executives with the company sold an additional $900 million, totaling $1.3 billion, an amount equal to the Enron inside sales for the same period. Pacific Capital Group, Winnick's investment company, was the owner of Global Crossing's palatial office space in Beverly Hills, California. PCG had paid $41.5 million for the office space in 1998 and spent an additional $9 million on renovations. Global Crossing, its newest ôtenantö paid rent to PCG of $400,000 a month. Winnick's personal office, called the ôOval Office,ö contained furniture priced at over $1 million, and hanging outside the entrance to the office was a painting by Pablo Picasso, purchased for $15 million. The Beverly Hills office was not the only extravagant office space - Global Crossing's office in New York City, located at 88 Pine Street, underwent an extensive renovation. David Walsh, founder of IXNet (which Global Crossing purchased in February, 2000 for $3.4 billion), headed the Manhattan office and was acting Chief Operating Officer. Walsh oversaw the installation of a custom-made lighting system to emulate fiber optic strands with neon lighting. A staircase linking the 29th and 30th floors, installed but then changed at a cost of $250,000, was acknowledged openly by Walsh. Additionally, Global Crossing operated five corporate jets, including a Boeing 737, a Challenger, a Gulfstream, an Astra and a seven-seater, when, according to one former executive, it needed two jets maximum. Employees reported reckless spending in other areas as well, including the purchase of new accounting software costing $150 million when accounting department staff indicated the current software did not need updating. It was later discovered the software was never even installed. Gary Winnick's spending was criticized and he was condemned by many employees, many of whom had losses beyond their jobs when the company filed bankruptcy. Even as the company's financial situation went from questionable to grim, work continued on Winnick's Bel Air mansion, valued at $92 million and considered the most expensive home purchased in Los Angeles (and by some reports, American) history. Winnick purchased the 30,000 square foot mansion on 9 acres, known as Casa Encantada, in September 2000 from David Murdock. Winnick paid $66 million of the purchase price in cash. After the acquisition, much of the house was renovated, new mechanical and electrical systems were completely updated and a service wing was converted into a studio for his wife Karen Winnick. The estate includes tennis courts, a swimming pool, pool house, and priceless views of Los Angeles. Prior to Murdock, the original house had been owned by Conrad Hilton, founder of Hilton Hotels. Winnick stated publicly and accurately that the 64-year old estate was being ôupdated and freshened.ö With his wife Karen, a childrens' book author and co-founder of the Gary & Karen Winnick Foundation, Gary Winnick gave extensively to charity. To the Simon Wiesenthal Center, a Jewish center in Los Angeles committed to fighting prejudice and hate crimes, Winnick pledged $40 million for the construction of a branch to be located in Jerusalem that will be called the Winnick Center for Tolerance. Another Jewish center, the Skirball Center, received a $5 million donation, and the Winnick Foundation pledged $3 million to a Chabad girls' school in West Los Angeles. A total of $100 million was given to other charities, including the Los Angeles Zoo and the Los Angeles Public Library. Hutchison Whampoa withdrew from its planned purchase of Global Crossing after the Committee on Foreign Investment in the United States made it clear that the purchase would not be approved with Hutchison as a purchaser. Singapore Technologies Telemedia acted alone and purchased Global Crossing for $750 million, buying it out of bankruptcy and terminating Gary Winnick's control of the company. Investigations were conducted by the SEC and resulted in former CEO Thomas Casey, former chief financial officer Dan Cohrs, and former president of finance, Joseph Perrone receiving fines of $100,000 each. The SEC closed its investigation of Gary Winnick, who received no punitive action or fines. Tyco International Ltd. The year 2000 was a year marked by scandal over the accounting practices of some of the biggest corporations in the world, including Tyco International Incorporated. TycoÆs top executives were indicted and convicted of fraud charges stemming from both improper accounting practices as well as improper personal use of company funds. The planning strategy of these executives seems to have been more focused on personal gain than on the best interests of the company and its shareholders. They ignored their responsibilities to the laws governing corporate management and to their investors and employees. Dennis Kozlowski, the chief executive officer, alone plundered the company of over 400 million dollars. Using company funds, he threw a ôtoga partyö for his wifeÆs birthday that cost two million dollars. He bought millions of dollars worth of art to decorate his home. He spent six thousand dollars of company money on a shower curtain and 15 thousand dollars on an umbrella stand shaped like a poodle. Unlike most of the companies targeted by those investigations, Tyco survived the scandals and is still in business today because it changed the way that it operates. Tyco International Ltd. NYSE: TYC is a conglomerate incorporated in Bermuda, with United States operational headquarters in New Jersey. Major business areas of Tyco include electronic components, health care, fire safety, security, and fluid control. Former chairman and chief executive Dennis Kozlowski and former chief financial officer Mark H. Swartz, were accused of the theft of US $600 million from the company. During their trial in March 2004, they contended the board of directors authorized it as compensation. During jury deliberations, juror Ruth Jordan, while passing through the courtroom appeared to make an ôokayö sign with her fingers to the defense table. She later denied she had intended that gesture, but the incident received much publicity (including a caricature in the Wall Street Journal), and the juror received threats after her name became public. Judge Michael Obus declared a mistrial on April 2, 2004. On June 17, 2005, after a retrial, Kozlowski and Swartz were convicted on all but one of the more than 30 counts against them. The verdicts carry potential jail terms of up to 25 years in state prison. Kozlowski himself was sentenced to no less than eight years and four months and no more than 25 years in prison. Kozlowski has been tried twice. The first attempt was a mistrial as one of the jurors - who sided with Kozlowski - later claimed that she was threatened. Kozlowski testified on his own behalf during the second trial, stating that his pay package was ôconfusingö and ôalmost embarrassingly bigö, but that he never committed a crime as the company's top executive. Kozlowski was convicted on June 17, 2005 for misappropriation of Tyco's corporate funds, among other charges. The prosecution won a total of 22 counts of grand larceny for $150 million in unauthorized bonuses. He was convicted of fraud against the company shareholders for an amount of more than $400 million. On September 19, 2005 he was sentenced by Judge Michael Obus of the Manhattan Supreme Court to serve from eight years and four months to twenty-five years in prison for his role in the scandal. The former executive, who is 60, may not reveal his finances for many reasons, according to divorce lawyers and attorneys in civil suits against him. Kozlowski, who is serving 8 1/3 to 25 years at the Mid-State Correctional Facility in Marcy, N.Y., was convicted in 2005 for looting the company and selling its stock after artificially inflating the price. Kozlowski became notorious for his perceived extravagant lifestyle supported by the booming stock market of the late 1990s and early 2000s; allegedly, he had Tyco pay for his $30 million New York City apartment which included $6,000 shower curtains. According to Forbes, Kozlowski also purchased several acres in the private gated community, ôThe Sanctuaryö, in Boca Raton, Florida, when he was CEO at Tyco International. Tyco paid $1 million (half the bill) for the 40th birthday party of Kozlowski's wife, Karen M. Kozlowski. The extravagant party, held on the Italian island of Sardinia, featured an ice sculpture of the Statue of David urinating Stolichnaya vodka. This birthday bash was disguised as a shareholder meeting in order to get corporate funding. In a camcorder video, Dennis Kozlowski states that this party will bring out a Tyco core competency - the ability to party hard. Subsequently, this shareholder meeting / birthday party became known as the Tyco Roman Orgy. On July 31, 2006, Karen Kozlowski filed for divorce in Palm Beach County, Florida. No specific reasons were cited, but the motion asks the court to equitably distribute the couple's assets and liabilities and asks that gifts Karen received be declared marital property. She also seeks a lien on the couple's Boca Raton mansion. Finally, the motion requested alimony. Problematic disclosures start fresh and early in Tyco's filings, Tyco says in a footnote that during fiscal 2001, it purchased businesses for an aggregate cost of $19.6 billion. Did it really, though? Tyco understated the $19.6 billion sum by nearly $2.5 billion. How did it do that? Because Tyco counted only the stock portion that it paid for CIT Group, which it bought in June 2001. Further digging reveals it did not include nearly $2.5 billion in cash that Tyco paid to Dai-Ichi Kangyo Bank for the remaining 27% of CIT shares it didn't own. So Tyco actually paid out $22 billion for acquisitions in fiscal 2001. And a big $19 billion of that went into goodwill, which again never has to be amortized, only tested for impairment periodically. Goodwill means a lot to Tyco. For example, look at the size of the goodwill in Tyco's buy of CIT for $9.5 billion. An 8K filed in June 2001 shows that CIT's tangible net worth was just $4.1 billion, so $5.4 billion went on Tyco's books as goodwill. Another $1.4 billion in cash was expended, in connection with the acquisition between June and December, which also went into the goodwill account, ratcheting that amount up to $6.8 billion. Tyco clearly overpaid for CIT. It took a $4.5 billion charge to earnings and is restating its second-quarter numbers downward to reflect the impaired value of CIT, which was reportedly carried on Tyco's books at a value much higher than it expects to get in an initial public offering it's planning for the division. But then there's more than overpaying for deals going on at Tyco. It doesn't seem like Tyco's getting any hard assets in these deals. In all, Tyco Industrial (sans CIT) paid out $11.4 billion for acquisitions during the year ended September 2001. But it booked $13.3 billion in goodwill, says Briloff. Translation: Tyco got less than nothing in real net assets for these acquisitions, given the enormous amount it dumped into goodwill. Tyco also cleverly used the accounting system's loopholes to avoid a further sock to earnings. Accounting rules let companies adjust their purchase prices for an acquisition within one year after the deal takes place. When Tyco bought CIT, it valued CIT's loans at fair value and booked the loans at par. By year-end 2001, Tyco decided, heck, those loans weren't worth par at all. But instead of running the adjustment through its profit-and-loss statement as a loan-loss charge, presto change-o, it appears Tyco buried the difference into goodwill. The pricetag is huge here: $379 million. How can it do that? Logic here is that this deal was related, so any adjustments belong on the balance sheet. Never mind that Tyco was shopping CIT around for $5 billion recently, which would have resulted in a sweet gain on its income statement. Of course this is perfectly legit, but another example of Tyco's gamesmanship. Some Wall Street analysts note that CIT did take some writedowns (just prior to the merger with Tyco) to its portfolio, so it did know that the loans had issues. Still, to Tyco, the subsequent markdowns reflected necessary adjustments. There's more to have discovered what he calls a ô$3 billion, three-cardö Monte game in Tyco's books for its industrial segment, which includes security and electronics, health care and fire protection. What does he mean by that? Specifically, Tyco details seven acquisitions in its SEC filings it made in 2001, pricetagged at a total cost of $8.4 billion. In addition, Tyco acquired ôpossibly hundreds of other companiesö for an aggregate cost of $3 billion. Tyco didn't disclose any details about those acquisitions, though. So that $3 billion sum was apparently immaterial to Tyco. What's particularly egregious is the fact that Tyco did not file with the SEC disclosure forms (known as 8K filings), which would have carried the exhibits setting forth the balance sheets and income statements of the acquired companies. This is an even worse situation than under the old pooling accounting, because under that now vestigial method, investors and analysts could dig out the historical balance sheet and income statement for the acquired companies. One might think that ôWhere was the SEC and the auditors, PricewaterhouseCoopers and the audit committee when this kind of acquisitions accounting was being carried on?ö White Collar Crime In 2002, a wave of accounting scandals broke in the United States. A number of leading companies have admitted to mis-stating their accounts, giving a misleading impression of their status. In public companies, this type of creative accounting can amount to fraud, and a series of investigations have been launched by the U.S. Securities and Exchange Commission. In several cases, the sums involved are in the billions of dollars. The Enron scandal has so far resulted in the criminal conviction of the Big Five auditor Arthur Andersen, and that firm has had to divest itself of its non-US partners. There is a general perception that there are other accountancy scandals waiting to be uncovered, which has contributed to the 2002 stock market downturn. On July 9, 2002 George W. Bush, the first US President to hold an MBA, gave a speech about recent accounting scandals that have been uncovered. In spite of its stern tone, the speech did not focus on establishing new policy, but instead focused on actually enforcing current laws, which include holding CEOs and directors personally responsible for accountancy fraud. These scandals have reignited the debate over the relative merits of US GAAP, with its rules-based approach to accounting, and International Accounting Standards and UK GAAP, which favour a principles-based approach. The Financial Accounting Standards Board has announced it intends to introduce more principles-based standards. More radical means of accounting reform have been proposed but so far have very little support. While the Enron bankruptcy first brought these issues to our attention, it appears that Global Crossing, which has also declared bankruptcy, and other telecom companies accounted for key activities in a way that raises serious concerns. Employees and investors need to know whether they engage in swaps of capacity that had a legitimate business purpose or did not, and whether they were accounted for properly or in a way that just pumped up their projected cash flow and stock prices. Global Crossing entered into these capacity swaps with a number of companies, including Qwest, Cable and Wireless, and WorldCom at a time when the entire telecom world was experiencing an excess of capacity. We need to understand how the industry's overall problems intersected with the use of those swaps. Just as important to my way of thinking is the desire to protect shareholders and employees from the kinds of activities that are often characterized as sweetheart deals that might have had an adverse impact on shareholder's value. Some of these practices include special treatments for loans, bonuses and pension payouts. In order for our Nation's economy to remain on sound footing and to continue its recovery and anticipated growth, it is vital for the American investor to have access to the most recent, meaningful, and accurate information possible. Good corporate governance is necessary for such an environment to exist, and that is one of the things we are seeking to accomplish by the introduction and implementation of the CARTA legislation. Is it more than a coincidence that Global Crossing and Enron were both audited by Andersen? Perhaps. But it is for sure that both Enron and Global shared the same fate in Chapter 11 bankruptcy. The notion of true auditor independence is at issue, and, specific to this hearing, how big of a factor it was in Global Crossing's demise, we hope to learn today. Over 9,000 people lost their jobs as a result of the Global bankruptcy, most of which were unaware of the accounting improprieties that may have cost the company its life. The reach of the Global Crossing debacle into the telecommunications sector was deep: By some estimates over 500,000 jobs and $2 trillion in market capitalization in the sector was lost as a direct result of Global Crossing's bankruptcy. Global Crossing and Enron sought and received accounting rules waivers that they thought would produce greater profits. Instead the practices contributed to the collapse of the corporate giants. The government continues to have major contracts with Enron and their accountants even as Congress investigates serious improprieties in their financial wheeling and dealing. Enron did have a vision for itself in to become one of the biggest electric companies in the world, but lack leadership at the top management. Leadership there at Enron demonstrate of what not to do when a crisis or setting a goal. Enron deceived its shareholders and disregard their liabilities in the company. When considering what type of implications to use from Enron the options are endless. They for one grew at an enormous rate and maybe unstable for its time. As CEO, play more of leadership roles, unlike Ken Lay who was the centerpiece on lobbying Washington. He did not demonstrate of a quality, leading by example, because he didnÆt show the company a leader. Skilling did show some quality as a leader. His ambition, the drive to be on top, being aggressive to achieve his goal, and doing whatever it takes to accomplish his goal. Moreover, to prevent similar situation from occurring like Enron. Have like an open door policy, where it allows employees to voice their concerns without being reprimanded if policies are disagree between management and lower position. All in all, considering how Enron was scrutinized that causes its demise. Companies has built its to reassure that its best interest is the shareholders and customers as implemented such as GE and Motorola for many years. With its corporate philanthropist, Enron was envisioned as a corporate tycoon, but its greed and negligence of its top management. It implies that the collapsed of Enron can not be prevented and why early development of deceptive practices was not surface. After reviewing the information, how did the government ignore the importance to keep its grasps on situation when it gets out of control? Maybe they were too busy benefiting from Enron carelessness of handling its funds and allocating them. They were able to shift their debt and boggle the mind on how they were able to do it. The energy companies were able to lobby the government to deregulate its rule is astonishing. It is understand that the bottom line employees may or may not understand or know any of EnronÆs mistakes and its special partnerships, but how can anyone excuse those who did know. Loyalty or frightened to come forward with the information. Tyco, like Enron and Global Crossing alleged the same charges. Common grounds in all the three cases are the loopholes of accounting standards and the deceiving management. CEOÆs of three firms are trialed and found in many fraudlent activities with the consent of audit firms. Fortunately or unfortunatley in two cases (Enron & Global Crossings) audit firm was the same i.e. Arthu Anderson. Stockholders are provided with the false income statements and balance sheets for long time and CEOÆs were filling their pockets with both hands and ruining the interests of shareholders and employees. References John Armour and Joseph A. McCahery, 2006, ôAfter Enron: Improving Corporate Law And Modernising Securities Regulation in Europe And the USö Arianna Huffington, 2004, ôPigs at the Trough: How Corporate Greed and Political Corruption Are Undermining Americaö Paul Jorion, 2003, ôInvesting in a Post-Enron Worldö Michele Fratianni, Paolo Savona, and John J. Kirton, 2007, ôCorporate, Public and Global Governance (Global Finance)ö Kathleen F. Brickey, 2006, ôCorporate And White Collar Crime: Cases And Materialsö Brickey, 2006, ôCorp & White Collar Crime: Cases 07ö White Collar Crime in Big Business PAGE 32 0 * + Ò 9 : \ ] ╗ à ╠ ═ õ S T í ó ¿ ® Ï ┘ Ô °Þ°█╬┴Á¡ÑØÆèÆèÆÑ• wlèlèlèlèldYèYèYè Ò ┴ ┬ â' ä' ì' hât{ hât{ OJ QJ Ä' ë( è( hÊ8─ OJ QJ hW-õ hW-õ OJ QJ hæ$ OJ QJ hæ$ hæ$ OJ QJ h k OJ QJ hÚjD hÚjD OJ QJ h▄+ OJ QJ hÚjD OJ QJ hT┤ OJ QJ h┴░ OJ QJ ^J aJ hy;& OJ QJ ^J h=t║ h┴░ OJ QJ hy;& h┴░ OJ QJ ^J ^J - hy;& ; üB* OJ QJ ^J hy;& ph h┴░ OJ QJ " 1 2 3 ¥ ┐ └ ┴ ┬ ├ Þ ▄ À À » » » dÓ gd@] $ ã └! 4 Þ 5 » 6 Þ » 7 Þ 8 » 9 Þ ] Þ ë » ╗ ╝ ¢ Þ Ð » äð dÓ $ dÓ ñ ñ [$ \$ ]äða$gd┴░ a$gd┴░ ãÓ└!dÓ ãÓ└!dÓ gd┴░ dÓ a$gd┴░ gd┴░ $ ¾¼ ?¡ ■■ ├ ─ ┼ ã à ═ õ ¼ ┐% Ë Ã T Ñ, ¸ D 3 Ë ┬ ║ ß7 ▓> à YB ¸ ZB à kB à ÓD Ù PO à ¸ ▀ à à ¸ ▀ à à ¸ à ╗ äð dÓ `äð gdSx¡ äð dÓ `äð gdât{ äð dÓ `äð gdW-õ äð dÓ `äð gdæ$ äð dÓ `äð gdÃxe dÓ gd@] è( ö( ò( -, , :, ;, º1 ¿1 «1 »1 YB ZB hB iB jB kB ▀D ÓD HF WF ªG ºG ─G ╠G ═G PO S S PU QU ±V ‗V ¤Ý¤Ý¤Ý¤Ý¤Ý¤Õ¦Ý¦═┬Ý│º│ø│ºø│îÇqeq V h╩ hÂ[Z OJ QJ mH sH hTz OJ QJ mH sH h╩ h╩ OJ QJ mH sH h ø dÓ `äð gd| dÓ `äð gdá0, dÓ `äð gdf-* dÓ `äð gdß U dÓ `äð gd9 ÷ ~Ç ÅÇ ü ü %é 7é Îé ¯é ä ä ää ùä ùå ÿå ë ë ?è @è Mè pè qè çè êè ï ¶Õ┘╩¥╩¥╩▓ö÷ö÷ê|maUmImIm h k OJ QJ mH sH h÷XÞ OJ QJ mH sH h^6 OJ QJ mH sH h÷XÞ h÷XÞ OJ QJ mH sH h° « OJ QJ mH sH hË;§ hË;§ OJ QJ mH sH ht>ø OJ QJ mH sH ht>ø ht>ø OJ QJ mH sH h| OJ QJ mH sH há0, OJ QJ mH sH h| h| OJ QJ mH sH hY OJ QJ mH sH hvO¢ hvO¢ OJ QJ mH sH hð-Ñ OJ QJ mH sH @è êî wì [Ä Å Å Å ╚É ræ äð äð äð äð äð äð äð Æ |ô %ò ù þ ?ÿ éÖ Ë 1ø à ¾ø þ ù£ Ë 1× ╗ öƒ þ ╗ð Ë ¾ ▀ à ╗ ¾ þ à ╗ þ Ë Ã ╗ ╗ äð dÓ `äðgd┴hE äð dÓ `äð gdý } äð dÓ `äð gdt41 dÓ gd▓6 äð dÓ `äðgd╗┴ äð dÓ `äð gdË;§ ï ï %ï 2ï ñï Ñï ┐ï └ï õï Õï ¾ï î hî çî êî ëî ¼ì ╝í :Ä YÄ [Ä pÄ qÄ õÄ Å Å Å ¶Õ┘Õ═Õ┴Õ┴Õ ÁÕ®Øæévéjé^┴éR┴F h°4m OJ QJ mH sH h╝|a OJ QJ mH sH h:cê OJ QJ mH sH hêOÊ OJ QJ mH sH h─g OJ QJ mH sH h╗┴ h╗┴ OJ QJ mH sH h╗┴ OJ QJ mH sH hÖ OJ QJ mH sH h P¡ OJ QJ mH sH h`eÅ OJ QJ mH sH h k OJ QJ mH sH h ä OJ QJ mH sH h╗c░ OJ QJ mH sH h╗c░ h╗c░ OJ QJ mH sH hi ¢ OJ QJ mH sH Å Å Å Å ÃÉ ╚É {ô |ô $ò %ò >ÿ ?ÿ üÖ éÖ 0ø 1ø | ø ¶Þ¶┘═¥▓ö÷ê|maRF7 h┴hE h┴hE OJ QJ mH sH h{É OJ QJ mH sH hP@õ hP@õ OJ QJ mH sH håsÑ OJ QJ mH sH h{É h{É OJ QJ mH sH hý } OJ QJ mH sH hý } hý } OJ QJ mH sH ht41 OJ QJ mH sH h $ h $ OJ QJ mH sH h)"² OJ QJ mH sH ht41 ht41 OJ QJ mH sH hân OJ QJ mH sH h)"² h)"² OJ QJ mH sH h─UA OJ QJ mH sH ho╔ OJ QJ mH sH |ø úø û£ ù£ 0× 1× ìƒ ñƒ öƒ ║ð ╗ð º º U¿ V¿ {¿ | ¿ ö¿ ¶Õ┘╩¥»ö÷ê|mamUI=. hÚGï hò|' OJ QJ mH sH hÚGï OJ QJ mH sH hm"þ OJ QJ mH sH hL:Ü OJ QJ mH sH hâ~Ñ OJ QJ mH sH h¼: h¼: OJ QJ mH sH h¼{ OJ QJ mH sH hL:Ü hL:Ü OJ QJ mH sH hïRV OJ QJ mH sH hhõ OJ QJ mH sH hÌst hÌst OJ QJ mH sH h*5¨ OJ QJ mH sH h╣zA h╣zA OJ QJ mH sH h┴hE OJ QJ mH sH h┴hE h┴hE OJ QJ mH sH hbR[ OJ QJ mH sH ╗ð º V¿ ® ß® ½¬ ¼¬ ¡¬ «¬ ╣¬ ‗¬ &½ G½ {½ Á½ ¥½ ¾ ½ /¼ j¼ ó¼ ¥¼ ¾¼ =¡ >¡ ?¡ ¾ ¾ ¾ ¾ ¾ ¾ ¾ ¾ Þ Ó Ó Ó Ó Ó Ó Ó Ó Ó Ó Ó Ï Í È È dÓ gd:)Ó dÓ gd9Y $ dÓ a$ gd`rM äð dÓ `äðgd┴hE ö¿ ù¿ ÿ¿ Ö¿ Ñ¿ └¿ ─¿ п █¿ µ¿ ® ® ® ® ® -® &® 0® a® è® ▓® ¶Þ▄Þð─©─µá¶─ôê|pdXL@ h41§ OJ QJ mH sH h╬JÚ OJ QJ mH sH hF K OJ QJ mH sH hþbO OJ QJ mH sH hÖxV OJ QJ mH sH h¼E[ OJ QJ mH sH h"hé OJ QJ mH sH h dx OJ QJ mH sH h OJ QJ mH sH h©pN OJ QJ mH sH h-R┘ OJ QJ mH sH h┘à OJ QJ mH h¯% OJ QJ mH sH QJ mH sH hÔ QJ mH sH h sH hD h÷8║ OJ QJ mH sH ?ü OJ ¼ ±¼ QJ mH sH #‗½ ¼ ‗¼ ¾¼ sH hpU OJ QJ høR¹ OJ QJ mH sH .¼ /¼ 0¼ h¼ i¼ é¼ mH ༠sH hp-p OJ QJ mH hÓQN OJ QJ mH sH å¼ í¼ ╝µ ¢¼ ¥¼ ┼µ ═µ ╬ ¡ 0¡ 1¡ 2¡ 8¡ 9¡ ;¡ <¡ ±Õ±┘±┘±Õ┘Õ±┘╩╗»┘á┘æçzçgXgGg ! h k 0J OJ QJ ^J mH nH u h@3Û h k 0J OJ QJ ^J % j h@3Û h k 0J OJ QJ U ^J hy;& h k OJ QJ ^J h k OJ QJ ^J h:)Ó h^6 OJ QJ mH sH h£2║ h£2║ OJ QJ mH sH h:)Ó OJ QJ mH sH h:)Ó h:)Ó OJ QJ mH sH h9Y hhõ OJ QJ mH h k OJ QJ mH sH h9Y OJ QJ mH sH h9Y h9Y OJ QJ mH sH <¡ =¡ ?¡ @¡ ¾´Ó sH h:)Ó h^6 h@3Û h k OJ QJ ^J ?¡ @¡ ¸ OJ QJ mH sH h k dÓ gd:)Ó & 1Éh :pÃxe ░ð/ ░Ó=!░á"░á#Éá$Éá%░ £ @ @± @ N o r m a l CJ _H D A@‗ í D aJ mH sH tH D e f a u l t P a r a g r a p h F o n t V i@¾ │ V T a b l e N o r m a l :V ÷ 4Í 4Í l a÷ ( k@¶ ┴ ( N o L i s t , ■Oñ ± , ÷XÞ m a i n a r t t x t 4 @ 4 ┴░ ã H e a d e r B Ó└! 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