TOP STORIES--MAY 5-10

Subpoenas Issued

Over Enron Memos

U.S. regulators released memos written by Enron Corp. lawyers in 2000 that detailed an array of strategies used to manipulate prices in California’s deregulated electricity markets. According to one memo, one of the ploys “may have contributed” to a significant power emergency on Dec. 5, 2000.

Congressional investigators subpoenaed five current and former lawyers for Enron to appear at a hearing this week and state officials demanded regulatory reforms.

Separately, documents released by Congress suggest Enron’s board of directors--which has insisted that it was kept in the dark about the energy company’s financial problems--was warned in early 1999 that the company’s accounting practices “push limits.”

Duncan to Testify

in Andersen Trial

The trial of accounting firm Arthur Andersen, accused by the federal government of shredding tons of documents related to one of its clients, Enron Corp. opened in Houston.

If convicted, the Chicago-based firm automatically would lose its ability to audit public companies.

Among the witnesses for the government was an Andersen partner who testified that a company lawyer advised auditors to destroy drafts of memos about Enron accounting problems.

That testimony paved the way for the appearance this week of David Duncan, the former head of Andersen’s Enron audit team, who is expected to be the government’s star witness.

Federal Reserve Lets

Key Rate Stand

The Federal Reserve left its benchmark lending rate unchanged in an effort to prop up an economy that, despite more than six months of growth and impressive new efficiency gains, continues to slouch uncertainly toward recovery.

Fed policymakers left the so-called Fed funds rate--the interest that banks charge each other for short-term loans--at a 40-year low of 1.75%, where it has been since December. The move assures Americans that they will continue to enjoy some of the lowest borrowing costs in decades.

Despite widespread predictions earlier in the year that the economy would recover quickly, the central bank said after its meeting that “the degree of the strengthening in final demand over the coming quarters ... is still uncertain.”

‘Spider-Man’ Raises

the Bar for New Films

With a three-day box-office take of $114.8 million, Sony Pictures Entertainment’s “Spider-Man” set a new weekend benchmark for a movie’s debut and put increasing pressure on Hollywood studios to open big.

Three of four moviegoers nationwide went to see the screen adaptation of the classic Marvel comic books that follow the adventures of the superhero.

Several big-muscle films have yet to hit multiplexes, including George Lucas’ “Star Wars: Episode II--Attack of the Clones,” which opens Thursday.

Sony also is hoping to cash in on the another kind of blockbuster success--animated films--and appointed two veteran industry executives to head its new feature animation business.

Penney Finkelman Cox and Sandra Rabins, who started DreamWorks SKG’s animation division at the studio’s inception in 1994 and were executive producers of its Oscar-winning hit “Shrek,” will head the unit.

Merrill Seeks Settlement in Analyst Probe

Hoping to bring an end to the latest investment industry scandal, Merrill Lynch & Co. made a settlement offer to the New York attorney general, who is accusing the firm’s Internet analysts of making supposedly unbiased public pronouncements that failed to reflect scorn that they privately expressed for many companies.

Sources said Merrill’s proposal addresses Atty. Gen. Eliot Spitzer’s demands that the firm pay a large fine, accept blame for deceptive practices and make changes to ensure analysts aren’t skewing their findings to drum up lucrative business for Merrill bankers working on stock and bond issues and takeover deals.

Spitzer’s office called the discussions with Merrill productive, and a hearing was postponed until Thursday to give the parties more time to negotiate.

U.S. Investigating Cigarette Smuggling

U.S. authorities are investigating allegations that cigarette makers R.J. Reynolds and Japan Tobacco Inc. have violated trade sanctions against Iraq by channeling billions of dollars worth of cigarettes into the country through intermediaries, sources said.

The allegations of illegal shipments to Iraq first surfaced publicly in a civil lawsuit by the European Union, which accused Reynolds, Japan Tobacco and Philip Morris Cos. of evading hundreds of millions of dollars in taxes by promoting a vast cigarette smuggling scheme.

The tobacco companies said they were unaware of any investigation.

‘Magic’ Johnson Enters Suburban Market

Earvin “Magic” Johnson, the basketball-great-turned-businessman who has suggested he may run for L.A. mayor in 2005, opened a fitness and sports club in Sherman Oaks Galleria, a departure from his usual developments in the city’s underserved communities.

As founder and chief executive of Magic Johnson Enterprises, Johnson for nine years has been bringing theaters, restaurants and coffeehouses to urban centers with large minority populations.

But over the last several months his business portfolio has been gaining an added dimension--diversity. His company recently opened a Fatburger restaurant in Brentwood.

And by opening a high-end, high-profile club in the San Fernando Valley, Johnson gains access to a new constituent group--and a different demographic.

Mariah Carey Signs

New Record Deal

Pop star Mariah Carey, dumped four months ago by EMI Group after a disappointing album, signed an estimated $20-million, three-album deal with rival Universal Music Group, the world’s biggest record company.

EMI paid Carey $30 million to buy out her contract after the fall release of a poor-selling soundtrack album, and last summer she suffered a breakdown. Still, Carey was the target of a fierce bidding war, and she signed her new deal with Universal’s Island division after turning down offers from several competitors, including Bertelsmann Music Group’s J Records and AOL Time Warner Inc.’s Elektra label.

“I believe everything happens for a reason,” Carey told The Times.

More Tourists Than Expected Visit L.A. Area

Despite a drop-off in tourism after Sept. 11 and gloomy outlooks for visitors to Los Angeles and Orange counties for all of 2001, more tourists came and spent last year than officials initially estimated.

The final tally for Orange County showed a 1.7% increase in visitor attendance from 2000, instead of the 5% decline officials were bracing for immediately after the terrorist attacks.

In Los Angeles County, 1.8% fewer tourists visited in 2001, but that was better than the initial 5% decline in tourist traffic expected.

Tourists spent $18.5 billion in the two counties.

Electronic Copyright Case to Proceed

In an important legal victory for publishers, movie studios and record companies, a federal judge ruled that a controversial 1998 law bars the distribution of any tools that crack electronic locks on a copyrighted work.

Critics of the Digital Millennium Copyright Act said it allows copyright owners to wipe out consumers’ ability to copy music, books and movies for personal use. But Hollywood studios and record labels, alarmed by the flood of unauthorized copies online, are pushing for even stronger measures to limit what consumers can do.

Railroad Settles Suit Over Genetic Testing

Thirty-six railroad workers will share in a $2.2-million settlement of a landmark lawsuit that accused Burlington Northern Santa Fe Corp. of violating the Americans With Disabilities Act by secretly conducting genetic tests to investigate workers’ compensation claims.

Filed in February 2001, the suit targeted the first known case of on-the-job genetic testing.

The Fort Worth-based company, which also agreed to refrain from further genetic testing, said none of its actions “were contrary to the law.”

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For a preview of this week’s business and economic news, please see Monday’s Business section.