Week in Review
Auditor’s Plea a Blow to Andersen, Enron
Accounting firm Andersen faced new pressure to settle federal criminal charges after former partner David Duncan pleaded guilty to illegally destroying documents related to an audit of Enron Corp. Duncan also agreed to cooperate with the government against his former firm.
Duncan, chief auditor for the Enron account, agreed to enter a plea after learning that the Securities and Exchange Commission had opened an inquiry into Enron’s crumbling finances.
The SEC also challenged a retention-bonus plan for 1,700 Enron employees, saying the company hadn’t provided enough evidence that bonuses totaling as much as $137 million are warranted.
Brokerage Probe Gains Momentum
In a surprise legal action, New York’s attorney general, alleging severe conflicts of interest at Merrill Lynch & Co.’s Internet-research operation in recent years, asked a judge to order the company to begin disclosing new information about the interaction between the firm’s investment-banking and stock-research units.
Separately, Enron Corp. shareholders who lost billions of dollars charged that the company’s investment banks played a key role in the firm’s downfall by creating off-the-books partnerships that fed its collapse. The allegations were included in an expanded class-action suit filed in Houston.
In the Merrill case, New York Atty. Gen. Eliot Spitzer said a 10-month investigation of the brokerage’s Internet-research group discovered that Merrill analysts routinely questioned the validity of their own stock recommendations and, in some cases, bemoaned the pressure they felt to talk up the prospects of companies that were investment banking clients.
Legal experts say the investment industry could be facing broad exposure to suits by burned clients as a result of the probe.
State Jobless Rate Rises in March
Signaling that the economic recovery has yet to trickle down to the job market, California’s unemployment rate rose to 6.4% in March, matching the five-year high set in January.
Last month’s rise from February’s revised 6.2% rate was the result of anemic job creation. In March, California employers boosted their payrolls by a paltry 200 jobs, underscoring their continued reluctance to hire additional workers in a climate of uncertainty.
California’s rise in joblessness mimicked that of the nation, which increased to 5.7% in March from 5.5% in February.
A Smooth Ride for Alameda Corridor
The $2.4-billion Alameda Corridor, a 20-mile rail cargo expressway linking the nation’s busiest harbor complex with adjacent rail yards, opened relatively free of problems.
The corridor rail trench will carry more than $200 billion in imports and exports through Southern California and help boost the region’s status in global trade as a beachhead for a third of the seaborne cargo coming into the U.S., mostly from Asia and Latin America.
Crude Oil Prices Drop on Venezuela Coup
Crude oil had its biggest drop in five months on expectations that Venezuela will increase production after the ouster of President Hugo Chavez, who had led efforts by OPEC to limit supply.
Chavez, who was forced from office by the military after a popular uprising, transformed Venezuela into one of the staunchest adherents to OPEC production quotas, from its biggest cheater.
His ouster extended a 15% slide in oil prices from a seven-month high this month on reduced concern that Israeli-Palestinian violence would disrupt Middle East supplies.
After a volatile week, crude oil for May delivery fell $1.52, or 6.1%, to $23.47 a barrel on the New York Mercantile Exchange, the lowest closing price since March 6.
AT&T; to Seek OK for Reverse Stock Split
AT&T; Corp. surprised Wall Street by announcing a step more typical of tiny companies with poor prospects: a reverse stock split.
The long-distance giant said it will ask shareholders to approve a 1-for-5 reverse stock split once management sells the company’s cable business. The effect should be to boost the market price of the stock, though the change won’t affect shareholders’ wealth.
AT&T;, whose shares have been battered since early 2000 along with most other telecom issues, appears to fear that the pending sale of its cable assets to Comcast Corp. could leave AT&T; stock trading below $5, hurting the company’s image, analysts said.
AT&T; ended the week down almost 10% at $13.60 on the New York Stock Exchange.
Reports by GE, IBM Disappoint Investors
General Electric Co., under fire to disclose more detailed financial data, disappointed investors by reporting first-quarter revenue that was nearly unchanged from a year earlier at $30.5 billion, further indicating that the U.S. economic rebound has a long way to go.
The company is considered an economic bellwether because its segments include appliances, energy power systems, medical equipment, financial services and the NBC television network.
GE’s report came on top of a gloomy outlook by IBM Corp., also known for its historically steady growth. IBM said its first-quarter revenue and profit would fall well short of forecasts.
“The business environment is still very tough,” said Keith Sherin, GE’s chief financial officer.
Kirch’s Core Holdings Seek Creditor Protection
Media mogul Leo Kirch’s core television and rights-trading businesses filed for protection from creditors, heralding the biggest bankruptcy in post-World War II Germany and rocking national institutions from the chancellery to the Bundesliga soccer league.
Kirch’s media holdings collapsed under a load of debt, about $1.2 billion of the $5.7 billion owed from all of his enterprises. The debt includes $352 million owed to Hollywood studios for film rights.
With a legal declaration of insolvency for KirchMedia and KirchPayTV, the main holdings of Kirch Group, the 75-year-old founder bowed out of his namesake empire.
Clothing Firm Adopts Non-Sweatshop Concept
Ice cream mogul turned social activist Ben Cohen is backing a Los Angeles-based garment-making enterprise to help raise awareness of working conditions in garment shops while proving to other manufacturers that it’s possible to pay a “living” wage and still earn a profit.
SweatX brand of casual clothing will be marketed to college bookstores and high-end sports shops.
The operation is run by a former banker who took a 50% pay cut and is staffed by veteran garment workers who will be paid $8.50 an hour, with benefits, a pension and profit-sharing.
Pittman Put Back in Charge of AOL
AOL Time Warner Inc. removed Barry Schuler as head of its Internet division and temporarily gave the job back to Bob Pittman, who will attempt to revitalize the unit while also serving as chief operating officer of the parent company.
The reshuffling reflects growing anxiety on Wall Street about the Internet unit’s performance and its prospects for growth.
Pittman, who served as AOL’s chief executive before Schuler took the post in January 2001, is widely respected by investors as an operational wizard who helped turn Dulles, Va.-based AOL into an Internet powerhouse in the late 1990s.
From Times Staff
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For a preview of this week’s business and economic news, please see Monday’s Business section.
