It was a year of reckoning for those who lived it up during the boom times, a year when fortune and folly seemed weirdly linked. Connect the dots and it adds up to ...
The year begins with revelations that shredders have been working overtime at the accounting firm Arthur Andersen. Federal prosecutors claim accountants raced to dispose of tons of documents related to energy trader Enron's attempts to hide mountains of debt through complex financial schemes with such names as Death Star, Osprey and Chewco (short for Chewbacca, the furry "Star Wars" character). Andersen fires David Duncan, its lead partner in charge of auditing the energy giant, and he is charged with wholesale destruction of documents. He will later testify against his employer, which is eventually convicted of obstruction of justice. But Andersen is not the only company to invest in shredders. ...
...ImClone Systems Inc. has just taken delivery of two new beauties when federal investigators look into reports that executives sold large chunks of the biotech company's stock before receiving bad news from the Food and Drug Administration about the fate of a promising cancer drug. The probe eventually will involve lifestyle doyenne Martha Stewart. Also this month, Enron finance gurus Andrew Fastow and Michael Kopper are called before Congress to explain how the energy giant could fall so far so fast. They opt instead to invoke their Fifth Amendment rights against self-incrimination, eventually to be followed by former chairman and chief executive Kenneth Lay. Days later, the telecom industry quakes as accounting questions hit Qwest and Global Crossing. Both are accused of inflating revenue by improperly booking deals in which they swap rights to use each other's networks. Global Crossing, which once boasted a paper value of $50 billion - making it bigger than General Motors - has already filed for bankruptcy. Still, it manages to announce a big deal with NBC to transmit video feeds from the Salt Lake City Winter Olympics around the country. And of course NBC is owned by...
...General Electric, headed for years by now-retired chairman Jack Welch, who suddenly finds himself in divorce court. Welch is widely renowned for his corporate prowess; his autobiography is a bestseller. But thanks to the wonder of court filings, the details of his GE retirement package are made public and become a template for jaw-dropping, "Can you believe this?" excess: a $9 million annual pension; round-the-clock access to a GE-owned Boeing 737; a 2003 Mercedes-Benz SLR; use of company tickets to Wimbledon tennis matches, Red Sox baseball games and the Metropolitan Opera; dues for three private golf clubs; satellite TV in four homes; and cellular phone service in five cars, as well as wine, flowers, newspaper subscriptions, personal care, toiletries, postage, vitamins (!) and tips to staff. Welch gives up all but the pension amid the publicity. Yet the details might never have surfaced had he not become romantically linked to Suzy Wetlaufer, who resigns this month as editor of the Harvard Business Review after acknowledging that the two had become good friends while she was working on a profile of him. In a strange way Wetlaufer seems to uphold the values symbolized by the esteemed seal of Harvard, which promises "veritas," or "truth"...
...as does Harvard Law alum and New York Attorney General Eliot Spitzer, who vows to scrub clean Manhattan's financial district. The swaggering "Sheriff of Wall Street," as he is called, dredges up an obscure state law called the Martin Act to go after conflicts of interest that have long been obvious but have rarely been prosecuted. He takes on Salomon Smith Barney and others for dishing out stock from hot initial public offerings to favored investment-banking clients. This month, Spitzer's investigation also turns up e-mails from hotshot Merrill Lynch analyst Henry Blodget, in which Blodget privately confides that an Internet stock he publicly touts is a "piece of crap." Another, Blodget says, is a "dog," which is not necessarily a bad thing if your dog is...
...a poodle and a model for the 1840s French antique umbrella stand Tyco chief Dennis Kozlowski just had to have for a cool $15,000. "It's not just some stupid dog umbrella stand," his interior decorator tells the Wall Street Journal. "It's a very unique, beautiful piece." But beauty is in the eye of the beholder, as New York prosecutors charge Kozlowski with tax evasion for trying to duck sales taxes on $1 million worth of artworkÑthis as his conglomerate is being investigated for the way it accounted for its amalgamation of diverse manufacturing and services companies. Records show Kozlowski paid $6,000 for a shower curtain, $445 for a pincushion and $1 million for a 40th-birthday party for his wife on Sardinia, complete with waiters dressed as gladiators and ice sculptures carved to resemble Michelangelo's David. But Kozlowski is not the only corporate titan with a taste for fine art....
...In Manhattan, Vivendi Universal chief Jean-Marie Messier is remaking himself from a French investment-banker salaryman into a 21st-century Sun King. He parties with movie and music stars, spends millions redecorating his company-owned New York apartment, and drops $75 per tile on flooring for his Seagram Building headquarters. But the final insult may be when he moves a company-owned Rothko painting from a hallway into his office. During this month he assures investors that his company is in sound financial shape. Within three weeks, he is bounced by his board as the company drowns in debt from a buying spree that included Seagram, then parent of Universal Studios, USA Networks and Houghton Mifflin. A less refined corporate honcho turns out to be Rite Aid's Martin Grass, who is indicted on accounting-fraud charges this month. Grass is allegedly heard on recorded phone conversations bragging that the government will never learn about incriminating corporate records "unless they use a Trident submarine." The underwater craft also proved useful to...
... telecom companies like WorldCom, which relied on subs and other oceangoing craft to lay miles and miles of undersea cable that eventually created such a glut it helped submerge an entire industry. But bad business bets are the least of WorldCom's troubles as banks and shareholders line up to sue the company this month after it discloses that at least $3.8 billion in operating expenses had been improperly booked as capital expenses, making WorldCom appear more profitable than it was. Close on the heels of that bombshell comes the federal government's decision this month to charge three members of the Rigas family with treating their cable company, Adelphia, like an ATM and defrauding investors, borrowing $2.3 billion from the company and spending $12.8 million to build themselves an 18-hole golf course. Family members plead not guilty, but golf seems to play a part in another company's accounting mess, as ...
...a Washington Post investigation appearing this month uncovers several unorthodox revenue deals at the America Online division of media giant AOL Time Warner, which subsequently become subjects of a federal probe. For instance: To ensure carriage on AOL Time Warner's Time Warner cable system, the Golf Channel was muscled into buying advertising on AOL, helping the struggling online service make its revenue marks. AOL struck another odd deal with a British greyhound-racing Web site. It resulted in so many greyhound ads appearing on AOL, one subsidiary official complained to AOL's headquarters: "Dude, my home page looks like a dog site." The go-go transactions were executed by AOL's business affairs unit, then run by David Colburn, who not only made deals like a cowboy but also sported cowboy boots, much like...
...former WorldCom chief Bernard Ebbers, whose former company seems to be finding more accounting horrors by the day. By this month, the bankrupt company has discovered $7.7 billion in improper accounting, on its way to $9 billion. It will later be revealed that WorldCom board member Stiles Kellett, who headed a board committee that approved $408.2 million in loans to Ebbers, has enjoyed the use of a WorldCom jet. It wasn't free, mind you. He paid the company $1 per month (okay, okay, plus operating expenses) to lease it. He resigns his seat before the year is out. Air travel plays a role in another unfolding scandal the following month, when...
...Merrill Lynch broker's assistant Douglas Faneuil, 26, pleads guilty to a misdemeanor for accepting a free airline ticket, an extra week of vacation and a raise in his commission rate to lie about Martha Stewart's stock trades. He begins cooperating with authorities, and it isn't long before Stewart is informed she may face civil securities-fraud charges related to an insider-trading probe at the biotech firm ImClone. Stewart insists she did nothing wrong. Not so her friend, former ImClone chief executive Samuel Waksal, who pleads guilty to fraud and perjury. Waksal hopes his action will keep his father and daughter from getting tied up in the imbroglio, as he insists they had no idea that bad news about the company was coming when they sold their shares. Later in the month, another scandal heats up. A federal grand jury indicts Enron's former chief financial officer, Andrew Fastow, on 78 counts of fraud and money laundering for allegedly masterminding a series of byzantine accounting schemes that allegedly pumped up profits and made him and his family rich. The feds freeze more than $20 million in bank accounts belonging to Fastow and his wife and put in escrow proceeds from the sale of his luxurious $3.9 million home in a Houston suburb. Fastow professes his innocence. Family ties figure in another government probe, when state investigators uncover...
...a 1999 e-mail from star Salomon Smith Barney analyst Jack Grubman to his boss at Citigroup, Sanford Weill, asking him to use his influence to help get Grubman's twins into an exclusive Manhattan preschool. Grubman apparently agreed to do a favor for his boss and take another look at a stock he had previously rated only so-so. Lo and behold, he now found something he liked and issued a higher rating. Weill phoned the director of the school on Grubman's behalf, and the company later made a $1 million donation. Of course, by the time all this becomes public, Grubman has left the firm. In fact, this is a month of prominent departures, claiming not only high-powered analysts and corporate execs but regulators as well. SEC Chairman Harvey Pitt steps aside after only 15 months on the job, followed by William Webster, who Pitt chose to lead a new accounting oversight board. President Bush's economic adviser, Lawrence Lindsey, and his Treasury secretary, Paul O'Neill, soon follow. "If people don't like what I'm doing, I don't give a damn. I could be sailing around on a yacht," O'Neill once said. If he's looking for a sailing partner, he might consider...
...Lance Poulsen, head of National Century Financial Enterprises, a medical-finance firm. As hospitals financed by Poulsen's company were going bankrupt, he maintained a 58-foot yacht and a $1 million dockside Florida estate with a three-story waterfall, which is where he hunkers down as federal investigators probe him and his bankrupt company. ... By the end of the month, a year of what seems like constant corporate fraud and coverup has so permeated the culture that a holiday beer commercial features crooked executives shredding documents. Which, of course, brings the year full circle.
Credits: Olympics photo by Elise Amendola - Associated Press David statue by Stephano Rellandini - Reuters Submarine photo courtesy of Electric Boat Corp. by Jim Brennan Golf ball and Boot by Photodisc Jet by Elaine Thompson - Associated Press All other photos Washington Post file photos
