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Corporations rely on the world's big five accounting firms to provide unbias, third-party, analysis and audits of their companies. Pension funds and other investors have placed great confidence in these accounting firms to provide accurate reporting both good and bad. These international accounting firms have had a wonderful reputation. They include Arthur Andersen LLP, KPMG, Price WaterhouseCoopers (Lybrand), Ernst & Young, and Deloitte Touche Tohmatsu. However, these so-called independent auditors became dependent on the companies they audited when they began to take direct consulting work from them as well. Suddenly, companies like Arthur Andersen were making much more money from financial consulting that from conducting audits. Andersen, based in Chicago, was making a bundle off of Enron, and didn't want to jeopardize that. It appears that as a result, Andersen let many questionable financial practices continue unreported and unfixed. In the short-term it was lucrative, in the long-term Arthur Andersen was caught out and is now facing bankruptcy. With its plunging reputation, has gone the reputation of the whole accounting industry and questions raised about the thousands of companies they audit. The stock market continues to tumble with the lose of faith in financial reporting.

 

Arthur Andersen, an 89-year old firm, was indicted on March 14, 2002, for shredding Enron Corp. documents. Deputy Attorney General Larry Thompson said Andersen officials took part in "widespread criminal conduct." He described a document-destruction effort that was systematic and aggressive. Company officials "engaged in the wholesale destruction of tons of paperwork, and attempted to purge huge volumes of electronic data or information," related to Enron, according to Thompson. Andersen officials in Portland, Oregon, Chicago and London, U.K.,  were also told to destroy any Enron-related documents, the indictment said. The Department of Justice alleges that when Andersen started shredding documents related to its work for Enron Corp., the accounting firm knew the energy company was under a government probe. the Justice Department set out a clear time line of Andersen's actions. On Oct. 16, Enron issued a press release announcing a $618 million net loss for the third quarter of 2001. The company also announced that it would cut shareholder equity by $1.2 billion. The next day, the Securities and Exchange Commission (SEC) opened an inquiry into Enron and requested information from the company. Two days later, Oct. 19, Enron alerted Andersen to the SEC probe. Andersen employees began shredding documents on Oct. 23, the indictment said Andersen last summer agreed to pay the SEC $7 million to settle charges related to Waste Management, the largest civil penalty ever against a Big 5 accounting firm.

 

It appears that Andersen had a recent growing history of poor financial auditing. The SEC is reportedly now investigating Andersen's role as auditor for three telecom firms, including Global Crossing, Qwest Communications International Inc., and WorldCom Inc.. And before Waste Management, there was Sunbeam Corp. Sunbeam imploded in 1998 when the company restated its financial results for 1996 and 1997. Andersen, as Sunbeam's auditor, agreed to pay $110 million to settle shareholder lawsuits. Andersen prior to the Enron scandal had annual U.S. revenues of $4.5 billion.  Source, money.cnn.com/2002/03/20/news/companies/andersen_legal/ . Source, "Andersen indicted in scandal: Charge says firm shredded tons of Files,", by Michael Hedges and David Ivanovich, Houston Chronicle, Texas, March 15, 2002. Also see the Time Magazine website at   www.time.com/time/business/article/0,8599,216386,00.html . See the Arthur Andersen website and its explanations at www.andersen.com/website.nsf/content/MediaCenterEnronResources!OpenDocument .

 

 

 

Since 1989, Andersen has contributed more than $5 million in soft money, PAC and individual contributions to federal candidates and parties, more than two-thirds to Republicans. During the record-breaking 1999-2000 fund-raising cycle, very few companies outpaced Enron's prolific giving to George W. Bush. In fact, only 11 companies gave more money to the Bush-Cheney ticket, and one of them was Arthur Andersen, the embattled energy giant's now equally troubled auditor. Andersen was the fifth biggest donor to Bush's White House run, contributing nearly $146,000 via its employees and PAC. Furthermore, Andersen fielded one of Bush's biggest individual fund-raisers that year. D. Stephen Goddard, who until yesterday was the managing partner of Andersen's Houston office, was one of the "Pioneers," individuals who raised at least $100,000 for the Bush campaign during 1999-2000. Source, "Arthur Andersen: The Enron Scandal's Other Big Donor," Source, www.opensecrets.org/alerts/v6/alertv6_38.asp .
Visit the Arthur Andersen website at www.andersen.com/ .  Also see the websites www.opensecrets.org/alerts/v6/alertv6_38.asp ; and,  money.cnn.com/2002/01/17/news/v_andersen_ceo/ .

 

 

 

An internal audit of WorldCom Inc. long distance internet and phone carrier, showed the company had improperly designated $3.8 billion of expenses as capital expenditures since the beginning of 2001. The amount of these transfers was $3.055 billion for 2001 and $797 million for first quarter 2002. "Without these transfers, the company's reported EBITDA (earnings before interest, taxes, depreciation and amortization) would be reduced to $6.339 billion for 2001 and $1.368 billion for first quarter 2002, and the company would have reported a net loss for 2001 and for the first quarter of 2002." That accounting treatment had the effect of making the company appear profitable when in fact it was losing money. As accounting tricks go, WorldCom's was simple to the point of being obvious. "Unlike Enron, which was complicated, this is so basic that I teach it in the second week of my class," said Roman Weil, Professor of accounting at the University of Chicago graduate school of business. The company filed for bankruptcy protection under Chapter 11. WorldCom's stock listed on NASDAQ as WCOM plunged from a high of $62 in 1999 to 40 cents today. It plans to layoff about 17,000 workers after divulging that executives had cooked the books to the tune of about $4 billion. WorldCom

 

The Chicago Tribune reported (July 2, 2002) that, "WorldCom's deceptive accounting took place on a much bigger scale than that at Enron, but audit authorities say the long distance internet and phone  carrier's ruse was so rudimentary it should have been obvious to Andersen auditors. Chicago-based Andersen was the auditor for WorldCom until May 14, 2002, when it was replaced by KPMG." Expenses disguised as capital expenditures are one of the first things a sceptical auditor would examine. "That huge amount of money would involve transactions that would have to be justified," said Arthur Bowman, editor of Bowman's Accounting Report. While auditors don't examine every financial transaction, he said, they are expected to look at those that are large and potentially troublesome. A spokesman for Andersen declined to comment. WorldCom Chief Financial Officer Scott Sullivan prepared what is described as a "white paper" justifying his decision to treat expenses as capital expenditures, the source said. WorldCom took network maintenance expenditures and they recorded them as assets instead of writing them off. Analysts also point to the huge changes in transmission equipment owned by WorldCom in 2001. In total, the firm's assets jumped by more than $4 billion in 2001 to $48.7 billion, with transmission equipment increasing from $20.3 billion to $23.8 billion. The financial statements also show that WorldCom sometimes counted salaries and interest on debt as a capital expenditure -- when clearly they are expenses. By Robert Manor and Delroy Alexander, Chicago Tribune. See the full story at finance.pro2net.com/x34540.xml . Also see finance.pro2net.com/x34498.xml and,  news.com.com/2100-1033-824135.html .

 

 

 

WorldCom's President and Chief Executive Officer (CEO) Bernard Ebbers, took hundreds of millions of dollars out of the company. In 1997 alone, he was reported to have taken $383.7 million. That is a grotesque amount involving monies taken from pension funds, public investors, and banks. Bernie Ebbers, a bar bouncer from Canada, should have been seen for what he was when he settled in Jackson, Mississippi - a flim-flam artist like the "Music Man". Somehow he parlayed his small LDDS long-distance telephone service company into a force that would acquire a well-managed company, the $30 billion MCI telephone company. Over 14 years, Worldcom had grown by buying some 40 smaller companies. Ebber's most significant shortcomings was his inability to successfully operationalize the assets that he acquired, and to effectively integrate the people that he acquired. Ebbers also proved far too ambitious in terms of his willingness to use debt and equity (as opposed to cash) as a means of financing a variety of significant acquisitions. Ebbers finally resigned from the company he created April 30, 2002. See Time Magazine's article on Bernie Ebbers at www.time.com/time/digital/cyberelite/11.html .  See Forbes Magazine, "The Rise and Fall of Bernie Ebbers", at www.forbes.com/2002/04/30/0430wcom.html . And Salon.com's article at www.salon.com/tech/log/1999/10/06/ebbers/ .

 

 

 

High-speed communications services company Global Crossing, based in Hamilton, Bermuda,  started in 1997,  filed for bankruptcy in 2002. Its business partners in Asia agreed to provide a $750 million cash investment for a majority stake in the company. Global Crossing mismanaged its money and paid out billions of dollars to its bumbling executives and ended up going into bankruptcy. But not before founder and CEO  Gary Winnick became known as the richest man in Los Angeles, with an estimated worth of $6 billion. His office in Beverly Hills is reportedly a replica of the Oval Office, according to profiles of Winnick done by the Los Angeles Times and Business Week. Using pension fund, employee's investments and small stockholders investments in Global Crossing, Gary Winnick, in a fit of fraudulent extravagance, is currently  renovating his $94 million palatial estate in California. You can't see much from the ground, but an aerial view offers the full majesty of a home with 15 bedrooms and 17 bathrooms, overlooking the Bel Air Country Club. Within four years, Global Crossing had $22.4 billion in assets and $12.4 billion in liabilities. Global Crossing incurred the huge debt from acquiring companies which links more than 200 major cities in 27 countries. Lenders that include J.P. Morgan, Merrill Lynch, Citigroup and SBC Communications are scrambling to recover a fraction of their original investments. No one did better than Gary Winnick, a former executive at Drexel Burnham Lambert who founded Global Crossing in 1997. He took it public the next year and sold shares worth $734 million before the company collapsed. Global Crossing's creditors may be lucky to get pennies on the dollar. Many employees lost significant parts of their 401(k) funds. During the Internet boom, Global Crossing, which operates a global fiber-optic network for the transmission of phone calls and Internet data, was a Wall Street favourite. Global Crossing's ambition, to build a 100,000-mile fiber-optic network linking 27 countries, was an expensive proposition. As the company sought to raise additional money in April 2000 through a secondary stock offering, Mr. Winnick sold 8.1 million shares for $261 million.  Robert Annunziata became chief executive in 1999 and lasted only a year, but his employment contract was lucrative, with a signing bonus of $10 million. He was not worth it. It was not good for the company. It was a mis-appropriation of investors' monies.

 

Shareholders gave Global Crossing (GBLXE.OB) a value of $55 billion in its heyday, greater than General Motors at the time. Global Crossing was listed as GBLX on Nasdaq. The one-time Wall Street darling suffered further from slack demand and declining prices for bandwidth capacity. Trading in shares of Global Crossing was halted for the bankruptcy announcement. The stock fell about 96 percent in the past year is trading in the 50 cents per share range. In November 2001, Global Crossing posted a third-quarter loss of $3.4 billion, or $3.84 per share, compared with a loss of $602.4 million, or 69 cents a share, in the year-earlier period. Global Crossing's stock listed on the New York Stock Exchange as GBLXE.OB dropped from a high of just over $30.00 in 2000 to a current 5 cents per share. See media.corporate-ir.net/ireye/ir_site.zhtml?ticker=GX&script=300  .

 

A five-page letter was written by Roy Olofson, vice president of finance for Global Crossing, alleging that the company and its auditor - Arthur Andersen, inflated revenue and cash-flow figures. Global Crossing filed for Chapter 11 protection in January 2002. It is the fifth-largest bankruptcy case in U.S. history. Source, "Global's Accounting Challenged," The Washington Post, Washington, D.C., January 31, 2002. See,  home.talkcity.com/ReportersAlley/thecatbirdseat/GlobalCrossing.htm . Global Crossing said it and certain affiliates began Chapter 11 proceedings in U.S. Bankruptcy Court for the Southern District of New York and coordinated proceedings in the Supreme Court of Bermuda. Source, "Global Crossing files for bankruptcy," by Reuters, Philadelphia, January 28, 2002. See the full story at , news.com.com/2100-1033-824135.html . Visit the Global Crossing website at www.globalcrossing.com/xml/index.xml . For an angry shareholders website see  www.globaldoublecrossing.com/ .

 

 

 

U.S. telecom giant Qwest Communications International, based in Denver, Colorado, is the subject of a federal criminal probe, being scrutinized by regulators for questionable accounting practices. , acknowledged it was also the subject of a federal criminal probe. Shares of Qwest, briefly suspended plunged down to $1.77 from a high in July 2000 of $57.88. Moody's Investors Service and Fitch meanwhile cut Qwest's credit rating. The company's accounting practices were already being probed by the Securities and Exchange Commission. The company is saddled with some 26.6 billion dollars of debt. Qwest, formed in 1995 as a fiber-optic company, joined the ranks of the telecom giants in 2000 with the US $35-billion acquisition of the much-larger regional telephone group called US West. A possible issue for Qwest is whether it properly recorded revenue, as the company was one of the most aggressive users of "swap" transactions. Global Crossing which declared bankruptcy this year, turned over documents in February 2002, to the SEC concerning its deals with Qwest. The SEC probe of Qwest is based on the questionable accounting for the sale or exchange of $100 million in fiber optic cable between Qwest and Global Crossing. Source,  Agence France-Presse.

 

 

 

Adelphia Communications is a cable company with 5.7 million subscribers in 32 states and Puerto Rico, was the No. 6  cable provider in the United States. Apparently it was found that the Rigas family who ran the company had improperly borrowed $2.3 billion through various family-owned partnerships from Adelphia, syphoning its wealth and the investment monies of thousands of honest Americans into the Rigas's own personal bank accounts. At $1.16 a share, Adelphia's stock price was down 94 percent from a high of  $20.39 before it was delisted from the Nasdaq. The ill-gotten debt had been kept off the company's balance sheet and the company says it may be liable for some of the debt. They used the money to buy company stock and pursue personal ventures. With hundreds of millions of dollars socked away in their personal Swiss Bank Accounts, the Rigas family allowed Adelphia to declared bankruptcy in early July 2002. They will be rich forever beyond their wildest dreams, sitting with money that should have been used to build a better America. Deloitte & Touche, the company's auditor at the time, reported accounting inconsistencies to the SEC, stating that Adelphia tried to get Deloitte to sign off on the financial statements without supplying proper information for the auditing firm to do so. Adelphia fired Deloitte in June and hired PricewaterhouseCoopers. See the websites  finance.pro2net.com/x34614.xml .

 

Adelphia Communications, based in Coudersport, Pennsylvania, reported that a second member of its founding Rigas family resigned from a top position at Adelphia Communications in late May 2002. Timothy Rigas resigned as chief financial officer. His father, company founder, John Rigas, resigned in early May 2002 as chief executive officer (CEO) when the company said it suspended an audit by Deloitte & Touche. The Rigas family has voting control in Adelphia. The CFO's resignation was announced on the day Adelphia was to file its annual report to avoid being delisted from Nasdaq. Two of Adelphia/Rigas's corporate affiliates missed making $38.3 million in interest payments in May 2002 as well. The Rigas family was so busy taking money from the company that it failed to file Adelphia's 2001 annual report which normally includes an audited financial statement. Adelphia's shares closed at $5.70 in late May 2002, off 82 percent since the company disclosed $2.3 billion in off-balance sheet loans to partnerships run by the Rigas family. The Depository Trust, said Adelphia missed a $23.44 million interest payment on its 9.34 percent notes maturing in 2009. They also said its Olympus Communications unit missed a $10.63 million payment on its 10.63 percent notes maturing in 2006. The U.S. Securities and Exchange Commission has launched a formal investigation into the dealings between Adelphia and the Rigas family. Source  news.com.com/2100-1033-916028.html?tag=rn . Source, www.nandotimes.com/business/story/419512p-3345117c.html .Visit Adelphia Communication's website at www.adelphia.net/ . Go to the Adelphia Communications website at www.adelphia.net/ .

 

 

 

Tyco International became a $36 billion company under the direction of Dennis Kozlowski, chairman and chief executive. Mr Kozlowski, a former accountant, was replaced by Tyco board member and previous chief executive, John Fort. Over a ten-year period Kozlowski transformed Tyco from a small manufacturing firm into an industrial giant with interests ranging from fire alarms to medical equipment. But his strategy of aggressive acquisition-led growth was false, built on stock swaps, bad debt and the syphoning of profits into the pockets of Tyco's executives and corporate insiders. Tyco provide campaign contributions of $64,500 to the Democrats and $233,872 to the Republicans. Dennis Kozlowskiv is reportedly under criminal investigation for suspected tax evasion. The New York Times reported that New York District Attorney Robert Morgenthau is investigating Mr Kozlowski's alleged use of hundreds of millions of dollars moved into family trusts to purchase goods and services without paying state sales taxes. At its peak, Tyco had a market value of $US 120 billion, making it one of the 20 most valuable companies in the US. Its reputation took a big hit in late January 2002 on news that it had made a $US20 million payment to an outside director and to a charity the director controlled as a finder's fee for a merger. Tyco's stock on NASDAQ dropped from a high of $60.09 to $13.40 today. Listed on the New York Stock Exchange as TYC, Tyco was one of the world's largest electronics connector companies.  Source
afr.com/worldbusiness/2002/06/04/FFXJGK4O02D.html . See the BBC website
news.bbc.co.uk/hi/english/business/newsid_2023000/2023228.stm .

 

 

 

To prevent an Enron type corporate debacle in Europe, European Union (EU) finance ministers have agreed to consider toughening rules on financial analysts, markets, and corporate governance. Citing a June 2002 due date, the European ministers have asked corporate law experts to develop proposals for improved transparency and closer surveillance of organizations and their audit practices. Additionally, the finance ministers have requested that market regulators report on risks created by trading in derivatives and hedge funds. According to a Reuters news item, a separate group, which was set up before Enron's collapse to look at corporate governance in the EU, will also be asked to consider lessons from Enron and deliver a preliminary report by June. The group's report will address internal controls and the role of independent advisors, audit committees, and external controls, including auditing and accounting practices and the accuracy of financial statements.

 

 

 

Aiming to give substance to President Bush's pledge to "end the days of cooking the books, shading the truth and breaking our laws," an alliance of leadership companies is calling on every Fortune 500 company to institute independent third party verification of their corporate accountability. The Future 500, a not-for-profit business alliance that includes many of the world's best-known corporate brands, has launched a drive to commit a majority of Fortune 500 companies to conduct independent measurement of their accountability based on leading indices that rank their standing on financial, quality, social, and environmental performance. They are asking 100 companies in California, including 50 in the San Francisco bay area, to launch the process, which begins with a 170-point audit of accountability, called the Corporate Accountability Practices (CAP) Audit.  The Future 500 plan would flag practices that institutions such as the New York Stock Exchange, Dow Jones, NASDAQ, and Domini Social Index say may have contributed to breaches at WorldCom, Vivendi, Enron, Arthur Andersen, Merrill Lynch, Firestone, and others in the past two years.  It provides a top-line check of accounting process issues that can lead to abuse. "Only independent third party assessment will give corporate CEO's, directors, and shareholders the verification they need to prevent questionable practices from occurring in the first place," said Future 500 Chairman Tachi Kiuchi, Chairman and CEO Emeritus of Mitsubishi Electric America and a long-time champion of corporate accountability. For information contact Bill Shireman, Global Futures, at ph. 415-706-4482, or email bill@globalfutures.org . Visit the Global Futures website at www.globalff.org/Global_FF/gff-main.htm .
And see their "Fortune 500 Club" at www.globalff.org/Future_500/F500main.htm .

 

 

 

Aren't those who commit crimes supposed to be charged? Why aren't they? Is it because they contributed so much money to political parties that they are untouchable? Is it because they know the President? Is it because they talk well, wear nice clothes and look harmless? Is it because governments don't have good laws and regulations to control white collar crime? Is it because governments are complicit? These people not only spirited away tens of billions of dollars from the American people, they have single-handedly brought the world's largest economy to its knees. Can they do that and get away with it? Apparently they can. We here at the CIBE Institute work with hundreds of small to medium-sized environmental companies. They are honest and hard working. They contribute to the community well-being, pay their taxes and operate honest businesses to clean up the environment. They may even have invested their hard-earned money in mutual funds for retirement that are now reeling from the theft and collapse of those mismanaged companies. Compare the white-collar criminals to the poor smucks that rob a minimart for $200 bucks or a bank for $3,000. They are sent to jail without hesitation - 2 to 10 years in prison. Yet those that steal billions of dollars and contribute a couple hundred thousand to local charities, walk free. Where is the enforcement? Where is the fairness? Is there one law for the super-rich and another for the average Joe? No wonder investors' confidence is waning. No wonder people are walking away from the stock market. It is a joke - when these kinds of things happen on such a large scale. The public is mad. People are not going to take it anymore. Small company operators are not going to take it anymore. The State of California is not going to take it any more. It is time to get serious with such large-scale robberies.