CORPORATE CRIME

HealthSouth CFO Gets 27 Months

The main whistle-blower in the HealthSouth accounting fraud got the longest sentence so far in the case. U.S. District Judge Robert Propst sentenced former finance chief Weston L. Smith to 27 months in prison and ordered him to pay $1.5 million in forfeited assets and spend one year on probation after his release.

Smith's attorneys criticized the sentence, saying prosecutors were asking for the most severe punishment yet in the HealthSouth scam even though the $2.7 billion fraud may never have come to light without Smith's decision to go to the FBI in early 2003. They said prosecutors want to make an example of Smith because a jury acquitted fired HealthSouth chief executive Richard M. Scrushy of fraud charges.

INSURANCE

AIG Chairman Agrees to Stay

Frank G. Zarb, right, who took charge of American International Group during an accounting investigation this year, agreed to extend his chairmanship into 2006 while the company searches for a successor. Zarb had earlier asked the AIG board to seek a replacement before the end of the year, said Arthur Levitt, the former chairman of the Securities and Exchange Commission who is helping AIG recruit directors. Levitt said Zarb will run the board until at least the shareholders meeting next year, which has yet to be scheduled.

Zarb, 70, took control of AIG in March after the company ousted Maurice R. "Hank" Greenberg as chairman and chief executive officer amid an investigation of possible earnings manipulation.

Conn. Adds to Marsh Allegations

Connecticut Attorney General Richard Blumenthal added allegations of bid rigging, price fixing and illegal steering to the state's lawsuit against Marsh & McLennan, which paid $850 million in January to settle similar accusations by New York state Attorney General Eliot L. Spitzer.

The Connecticut suit alleges that when customers wanted to buy or renew insurance, Marsh brokers decided to which insurer to give the business and at what price.

PENSIONS

Settlement on WorldCom Losses

Citigroup, J.P Morgan Chase and at least 10 other investment banks agreed to pay $94 million to settle claims brought by Ohio pension funds over investment losses on WorldCom securities.

The settlement is separate from a $3.56 billion recovery by a group of WorldCom investors, said Michelle Gatchell, a spokeswoman for Ohio Attorney General Jim Petro.

In both cases, shareholders claimed that the banks, by underwriting WorldCom stocks and bonds, assisted the company in a fraud that led to the largest bankruptcy in U.S. history.

CONTRACTS

Bill Would Limit Firms' Liability

Sen. John Thune (R-S.D.) introduced legislation yesterday that would limit the liability of contractors working on Hurricane Katrina relief efforts. The bill has the support of the Associated General Contractors of America, which represents many companies working with the Army Corps of Engineers and the Federal Emergency Management Agency.

Those companies are concerned they could face class-action suits similar to those filed against firms that assisted in the clean-up of the World Trade Center after the Sept. 11, 2001, terrorist attacks.

ECONOMY

Consumer Sentiment Drops

A widely followed gauge of future economic activity fell for the second straight month during August as consumer confidence sagged even before Hurricane Katrina struck the Gulf Coast. The Conference Board said its Index of Leading Economic Indicators fell 0.2 percent last month to 137.6. July's slight increase was revised to a small decrease and there were downward revisions to previous months.

General Mills said fiscal first-quarter profit climbed 38 percent to $252 million, from $183 million a year earlier, as operating income improved in its U.S retail, international and bakery and food service segments. Revenue rose 3 percent, to $2.66 billion, for the three months ended Aug. 28.

KB Home, one of the nation's largest home builders, said third-quarter profit nearly doubled, rising to $227.5 million from $117.9 million in the comparable quarter last year. Revenue rose 44 percent, to $2.53 billion, and the company raised its earnings outlook for the rest of the year.

Compiled from staff and news service reports.

A federal judge sentenced former HealthSouth Corp. finance chief Weston L. Smith to 27 months.