WEEK IN REVIEW--AUG. 18-23
U.S. Seeks $20 Million
From Enron Ex-CFO
Justice Department officials said they would try to seize $20 million in profits illegally reaped by former Enron Corp. Chief Financial Officer Andrew S. Fastow based on information provided by another Enron executive, Michael J. Kopper, who pleaded guilty to conspiracy.
Fastow hasn’t been charged but has been portrayed as the mastermind of three allegedly fraudulent off-the-books partnerships.
Kopper, a former director in Enron’s global finance unit and a top aide to Fastow, appeared before a federal judge in Houston to admit that he broke wire-fraud and money-laundering laws. Kopper agreed to hand over $12 million in illicit profits, money that will be returned to investors who lost billions when Enron collapsed, government officials said.
Kopper faces a maximum of 15 years in prison, but his cooperation with prosecutors may ensure a more lenient sentence from Judge Ewing Werlein Jr., experts said.
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Sell-Off Disrupts Recent Stock Rally
Stocks ended the week on a sour note with the Dow Jones industrial average tumbling 180 points and taking some of the shine off another winning week for the market.
Concerns about the prospects for technology earnings and renewed worries about corporate accounting and accountability--stoked by news of deepening problems at Citigroup Inc. and AOL Time Warner Inc.--fueled the end-of-the-week sell-off.
Even with the loss, the Dow, with a 1.1% gain for the week, and the S&P; 500, up 1.3%, notched their fifth straight weekly gains. The last time the S&P; 500 achieved that feat was in the period ended Sept. 1, 2000.
The tech-focused Nasdaq composite index, which fell 3% on Friday, was up 1.4% for the week for its third straight weekly gain.
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AT&T; Is Subpoenaed in Analyst Probe
AT&T; Corp. received a subpoena from the New York attorney general’s office, which is trying to determine whether Citigroup Inc. analyst Jack Grubman raised his recommendation on the telephone company two years ago to help the bank get an advising role in a $10.6-billion transaction two years ago.
Citigroup faces more than two dozen lawsuits in addition to criminal probes, congressional subpoenas and regulatory investigations over allegations that Grubman violated rules by functioning as an investment banker for companies while he also wrote research for the bank’s Salomon Smith Barney unit.
New York prosecutors are seeking to determine whether Grubman raised his recommendation on AT&T; to help the bank win a role arranging a $10.6-billion stock sale in 2000. AT&T; said it is cooperating. Grubman resigned last week and received a $32.2-million severance package.
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AOL, AT&T; Alter
Cable TV Partnership
AOL Time Warner Inc. and AT&T; Corp. agreed to dissolve their complex Time Warner Entertainment partnership in a $9-billion deal that also will create a publicly traded cable TV company.
AOL Time Warner will pay $3.6 billion in cash and stock to AT&T; and get 100% ownership of HBO and Warner Bros. film studios, plus a controlling stake in the new cable company, Time Warner Cable Inc. Time Warner Cable, the nation’s second-biggest cable operator with 10.8 million subscribers, plans an initial public offering, perhaps as early as next year.
The deal, expected to close early next year, simplifies AOL Time Warner’s financial structure, positions it to buy more cable TV properties while prices are down and gives its troubled America Online unit a long-sought means of offering high-speed Internet connections to millions more customers on AT&T;’s cable-TV network.
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U.S. Approves Steel Tariff Waivers
The Bush administration approved a seventh and final round of steel tariff exclusions, waiving import duties on 178 products and further reducing the threat of a trade war with Europe and Japan.
The latest batch of waivers raises to 727 the number of products that have been exempted from the stiff tariffs imposed by President Bush to give ailing U.S. steel manufacturers more time to clean up their balance sheets and consolidate their operations.
Steel companies criticized the exclusions as excessive; steel-consuming industries said they were not extensive enough. Industry experts predicted that the effect on U.S. steel prices would be minimal but their political effect substantial.
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U.S. Opposes Order to Pull Paxil TV Ads
The Justice Department has asked a federal judge to reconsider an order that GlaxoSmithKline pull all television ads that claim that one of the company’s bestselling drugs is not habit-forming, even though the ads had satisfied the Food and Drug Administration.
The order by U.S. District Judge Mariana Pfaelzer of Los Angeles was directed at GlaxoSmithKline’s anti-depression drug Paxil, which accounted for more than $2 billion in sales in 2001. Pfaelzer ruled that TV ads for the drug were misleading in that they discounted the severity of withdrawal symptoms.
The ruling came in a suit filed a year ago on behalf of 35 patients who said they suffered withdrawal symptoms such as nausea, fever and so-called electric zaps to their bodies once they stopped taking Paxil. It would take effect Sept. 1.
The FDA and lawyers for both sides said they had never heard of a judge banning ads that had been approved by the agency. GlaxoSmithKline said it would appeal.
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Vivendi Executives Discuss Deals for Assets
Vivendi Universal’s top executives have begun exploratory talks with several companies interested in Vivendi’s U.S. entertainment assets, sources told The Times.
The prospective deals could involve either a buyout of Vivendi’s movie, television and theme park properties or the creation of a new entertainment company to be run by Barry Diller, chairman of Vivendi Universal Entertainment.
Among those who have expressed interest are cable industry magnate John Malone, who already owns 3.5% of Vivendi. DreamWorks SKG, the 8-year-old entertainment company financed by Microsoft co-founder Paul Allen and owned and run by filmmaker Steven Spielberg, veteran studio executive Jeffrey Katzenberg and music industry icon David Geffen, also talked with Diller.
The sale of Universal Studios, estimated to be worth at least $20 billion, would go a long way toward solving Vivendi’s crippling debt problem if buyers would be willing to pay something close to what the assets are worth.
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Feinstein Urges MWD to Kill Mojave Project
Sen. Dianne Feinstein (D-Calif.) called on the Metropolitan Water District of Southern California to vote down a $150-million proposal for a water storage program in the Mojave Desert as unnecessary and a potential environmental threat.
Feinstein’s comments, in a letter to the MWD, could be the most damaging blow yet to the Cadiz water storage program.
The Cadiz program, proposed in 1997, has become the signature project of Keith Brackpool, an entrepreneur who has been a generous financial backer of Gov. Gray Davis and one of Davis’ trusted advisors on water policy. Brackpool’s company, Cadiz Inc., which would be MWD’s partner in the project, borrowed heavily on the expectation that the project would be approved earlier this year.
Feinstein’s letter came amid indications the Interior Department is poised to issue, over her objections, the final federal environmental permits needed for the project to go forward. But MWD sources say the board may be near a decision to put the project on hold anyway, in part because of doubts that sufficient surplus water would be available from the Colorado River.
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Vanguard More Activist in Proxy Voting
Vanguard Group may be best known for its “passive,” index-style investing, but the mutual fund giant said it would begin taking a more activist role in corporate governance: The firm has revamped the standards it will follow in proxy voting, putting companies on notice about key governance issues.
Longtime activist investors representing pension funds hailed the move by the second-largest mutual fund company, but some governance experts called the new policies limited in scope.
Valley Forge, Pa.-based Vanguard, whose funds hold about $300 billion in stocks, posted on its Web site a letter recently sent by Chairman John J. Brennan to leaders of companies in which Vanguard holds a major stake. The letter addresses new standards in such areas as director independence and stock option programs.
For a preview of this week’s business and economic news, please see Monday’s Business section.
