Week in Review
White House, Capitol Hill Take Aim at Fraud
Washington turned its attention to Wall Street, starting at the top with President Bush proposing longer prison sentences for executives convicted of fraud and establishing a task force to police corporate wrongdoing.
The heads of the new task force, Deputy Atty. Gen. Larry Thompson and Harvey L. Pitt, chairman of the Securities and Exchange Commission who has been criticized for being too cozy with the industry he regulates, pledged to aggressively pursue white-collar criminals.
They might be helped by new legislation.
The Senate swiftly and unanimously voted to ban corporate loans to insiders by making it illegal, one of a series of amendments strengthening an accounting reform bill that is expected to be approved Monday.
The bill would have to be reconciled with a House version that Democrats say doesn’t go far enough.
The corporate loan issue put the White House on the defensive because Bush received low-interest loans from a Texas oil company while serving on its board of directors in the late 1980s.
WorldCom Ex-CFO Says Ebbers Knew of Scheme
WorldCom Inc.’s former chief financial officer, who is at the heart of the company’s accounting scandal, has told attorneys that ousted Chairman Bernard J. Ebbers knew about the accounting scheme that allowed the long-distance telephone giant to hide losses totaling $1.2 billion.
The attorneys relayed the information to a House committee.
Scott D. Sullivan, who last month was fired as WorldCom’s top finance executive, said Ebbers was aware that hundreds of millions of dollars had been moved into capital expenditure accounts to make the company look stronger than it was.
Ebbers denied Sullivan’s accusations.
Both Ebbers and Sullivan refused to testify as a congressional committee assailed the telephone company for hiding $3.9 billion in expenses.
Perot Denies Firm Used Inside Knowledge
In Sacramento, billionaire Texan H. Ross Perot defended his company against charges that it tried to profit from inside knowledge of California’s electricity market.
His testimony came as the state faced soaring temperatures and another energy crunch that prompted federal regulators to step in and allow power generators to raise short-term prices this summer.
Perot told a state Senate committee that Perot Systems Corp. offered to teach energy companies how to take advantage of loopholes in California’s deregulated market but did nothing wrong.
Halt of Clinical Trial
Hurts Drug Industry
The pharmaceutical industry was delivered a blow when a major clinical trial of the effects of hormone replacement therapy for women was halted. The trial, the most exhaustive study of hormone therapy combining estrogen and progestin, found increased risks of dangerous side effects in menopausal women taking the drug Prempro made by Wyeth Inc.
Investors fled stocks of Wyeth and other companies with HRT products on the market. The company sold $2.2 billion in HRT products in the 12 months ended March 31. Wyeth stock closed Friday at $38.50, down 22% over a five-day period.
In addition, Wyeth was slapped with a lawsuit that seeks class-action status on behalf of women taking Prempro.
Separately, drug giant Bristol-Myers Squibb Co. is under scrutiny by the Securities and Exchange Commission over its aggressive sales incentives that bolstered revenue by $1 billion last year.
State Unemployment Rate Unchanged
California’s labor market continued to tread water in June, with the unemployment rate unchanged at 6.4% and companies reluctant to do much hiring, according to data from the state Economic Development Department.
California employers boosted payrolls by only 4,400 jobs last month, underscoring their skepticism about the strength of the economic recovery.
Other economic data showed that consumers are having doubts about the economy’s strength. The University of Michigan index of consumer confidence fell to 86.5 in July, down from 92.4 in June and 96.9 in May.
Yahoo Posts Slim
Second-Quarter Profit
Reflecting a slow and steady shift amid the rubble of the dot-com collapse, Yahoo Inc. posted a slim profit after six consecutive quarters of losses.
The turnaround validates moves made by Chief Executive Terry Semel, who has struggled to reduce the Internet portal’s reliance on advertising and to implement fees for many of the site’s most popular services. Analysts said Yahoo had navigated the worst of a disastrous period and that the Internet economy appeared to be rebounding, albeit slowly.
Yahoo reported second-quarter net income of $21.4 million, or 3 cents a share, contrasted with a loss of $48.5 million, or 9 cents a share, in the year-earlier period. The company said revenue rose to $225.8 million from $182.2 million.
Michael Jackson Accuses
Sony Music of Cheating
Pop star Michael Jackson has taken off the glove.
The best-paid recording artist in the business has pitted himself against the chairman of Sony Music Entertainment Inc., Thomas D. Mottola, blaming the music executive for his latest CD’s poor sales and accusing the company of cheating artists, particularly blacks, out of royalty payments.
Mottola has declined to comment, and Sony called Jackson’s statements “bizarre” and “false.”
Record company executives and others have suggested that the King of Pop might be an emperor with no clothes, capitalizing on the artist rights movement to pressure Sony into breaking its contract so he can leave with his valuable catalog of master recordings.
Vivendi Faces Probe
by French Regulators
Vivendi Universal took a crucial first step toward averting a financial collapse by securing a key deal with its lenders, but the French entertainment giant now faces an investigation into how it has disclosed its complex finances.
The investigation, which centers on whether the company disclosed its liquidity crisis in a timely fashion, will complicate efforts by new Chief Executive Jean-Rene Fourtou to restore investor confidence . The company’s stock value has fallen about 70% this year.
The cause and scope of the investigation are unclear, but among the key questions investigators are expected to ask are when did the company become aware it faced a liquidity problem and how soon did it convey that to investors, said a source familiar with the investigation.
The company, which owns Universal Studios, was close to securing a $2-billion loan from its banks.
EBay Agrees to Buy
PayPal for $1.5 Billion
EBay Inc. widened its rule over the Internet auction world with an agreement to acquire online payment service PayPal Inc. in a $1.5-billion stock swap reminiscent of the dot-com boom.
EBay has been profitable every quarter since going public in September 1998, and it expects a second-quarter profit of 19 cents a share.
EBay transactions already account for about 60% of PayPal’s business.
Honda Plans to Expand
N. American Production
Showing strong faith in both an improving U.S. economy and a new-car market that can sustain annual sales of 16 million to 17 million units, American Honda Motor Co. said it would spend nearly half a billion dollars over the next 30 months to boost annual North American production by 180,000 vehicles, a 15% jump.
The move is the latest in a string of new factories or plant expansions announced by import car makers for their North American operations in recent months--an expansion occurring at the same time domestic car makers are closing some of plants and lowering production capacity.
Boeing Plans to Merge
Space, Defense Units
Boeing Co. is merging its Seal Beach-based space and communications unit with its military aircraft and missile systems business headquartered in St. Louis, a move that will allow the company to pursue a bigger chunk of the growing defense budget.
Boeing said it will combine the two units into a $23-billion business that will place all of its defense-related work under one roof. The combined unit, Integrated Defense Systems, will be headquartered in St. Louis and led by James F. Albaugh, president and chief executive of the space and communications unit.
Because the changes are mainly administrative, no jobs or facilities are affected. Chicago-based Boeing is the largest private employer in Southern California, with about 35,000 employees.
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For a preview of this week’s business and economic news, please see Monday’s Business section.
