Week in Review / TOP STORIES -- Nov. 3-8
SEC Chief Pitt Submits Resignation
Harvey L. Pitt, the beleaguered chairman of the Securities and Exchange Commission, resigned under pressure after his latest misstep left the White House embarrassed and unwilling to fight for his future as Wall Street’s chief regulator.
Fifteen months after his appointment, Pitt submitted a four-paragraph resignation letter to President Bush in which he said the controversy surrounding him was blunting the SEC’s efforts to restore investors’ faith in financial markets.
His resignation ends a term marked by repeated gaffes and controversies in a year when public trust in markets has been shaken by a steep slide in stock prices, widespread allegations of Wall Street misconduct and massive accounting scandals.
Pitt sparked a firestorm after it was revealed that he did not share with the four other SEC commissioners potentially damaging information about William H. Webster, whom Pitt had championed to be chairman of a new accounting industry oversight board.
The White House also may have a second vacancy to worry about: Webster may be pressured to quit over revelations stemming from his service as chairman of the audit committee of U.S. Technologies, which was sued by shareholders for fraud.
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U.S. Regulators to Audit Tenet Hospitals
Tenet Healthcare Corp. disclosed that U.S. regulators are preparing to audit its hospitals to determine whether the Santa Barbara-based company properly billed Medicare for certain services.
Officials at the Department of Health and Human Services said the audit, made known to Tenet on Oct. 28, was prompted by concerns raised by a contractor that processes Medicare claims for the government.
Tenet was criticized by investors after it waited a day to disclose a federal raid two weeks ago at its hospital in Redding.
Tenet, the nation’s second-largest publicly traded hospital company, with 113 facilities, has been reeling amid Wall Street questions about certain Medicare payments and the investigation of alleged medical fraud involving two doctors at the Redding facility who may have been performing unnecessary heart operations.
Two of Tenet’s top executives left the hospital company as Chief Executive Jeffrey Barbakow questioned pricing policies that have sparked the government audit. Chief Financial Officer David Dennis, 53, resigned, and Chief Operating Officer Thomas Mackey, 54, retired.
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Fed Cuts Key Rate by a Half-Point
The Federal Reserve cut its benchmark interest rate a surprising half-point to just 1.25% and acknowledged that it worries that the nation’s economic recovery is faltering.
The central bank’s policymaking Federal Open Market Committee acted after two months of rising unemployment, falling consumer confidence and a new nose dive by American manufacturers suggested that the economy has been unable to sustain the growth spurt it put on earlier this year.
The 12-member panel voted unanimously to cut the signal-sending federal funds rate to its lowest level since July 1961.
Policymakers suggested that the new rate cut was all that was needed to coax the country back to economic health and that no further reductions were planned.
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S&P; 500, Nasdaq Winning Streaks Broken
The Standard & Poor’s 500 index lost 0.7% last week and the Nasdaq composite fell 0.1% -- snapping four-week winning streaks for both of the widely watched market barometers. The Dow Jones industrials, meanwhile, eked out a 0.2% gain, extending that winning streak to five weeks.
The mixed results came as the United Nations moved closer to a confrontation with Iraq, voters gave Republicans control of the Senate, the Federal Reserve unleashed a surprisingly steep half-point cut in interest rates, Harvey L. Pitt submitted his resignation as head of the Securities and Exchange Commission and bellwether companies such as Cisco Systems Inc. and McDonald’s Corp. issued downbeat status reports on their businesses. The economic numbers, meanwhile, provided little concrete guidance for investors.
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Syncor May Have Violated Bribery Laws
Nuclear medicine provider Syncor International Corp. said it may have broken U.S. bribery laws by making payments to health-care facilities in Taiwan and China -- a disclosure that hammered the stock price of the Woodland Hills company and put on hold its pending acquisition by Cardinal Health Inc.
Syncor Chairman Monty Fu and his brother, Moses Fu, who directs the company’s Asian operations, are on leave “pending completion of an investigation into their involvement in the payments,” the company said.
Monty Fu also stepped aside as a director, while a special committee of Syncor’s outside board members looks into possible violations of the 1977 Foreign Corrupt Practices Act, which bars U.S. companies from bribing foreign officials.
The company wouldn’t provide details about the payments that are under investigation.
Analysts said the more pressing question is whether Dublin, Ohio-based drug wholesaling giant Cardinal, which discovered the irregularities during the pre-merger due-diligence process, will call off its deal to buy the much smaller Syncor for more than $900 million in stock and assumption of $200 million in debt.
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NBC to Purchase Bravo Cable Channel
NBC agreed to buy the Bravo cable channel from Cablevision Systems Corp. for $1.25 billion in cash and stock.
The transaction would give NBC, which is owned by General Electric Co., its first general entertainment cable channel. NBC Chief Executive Bob Wright said his network will focus on developing new shows, rather than using it to air repeats, as some of its broadcast rivals do with their in-house cable channels.
NBC’s rival broadcasters already own such cable channels, allowing them to spread the high costs of prime-time TV production across several outlets.
Still, Wright said he does see opportunities for Bravo to share the collective resources of NBC to strengthen the channel -- and therefore its ratings and advertising revenue.
For instance, Bravo could use footage from NBC News, CNBC and MSNBC to develop new programs as well as for its nonfiction signature shows, “Bravo Profile” and “Inside the Actor’s Studio.”
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Regulators to Seek Ways to Share Airwaves
Federal regulators launched a sweeping examination of the government’s management of the nation’s valuable airwaves, a move that could pave the way for cheaper and more innovative wireless devices.
Members of the Federal Communications Commission considered a highly anticipated report on spectrum management that recommends a more flexible approach to sharing the airwaves, including an overhaul of the standards for governing airwave interference and provisions to allow owners of airwave licenses to resell them under certain circumstances.
Separately, the agency authorized the opening up of more airwaves for advanced wireless services.
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Vivendi Faces SEC, U.S. Attorney Probes
Already under scrutiny by authorities in Paris over whether it concealed a financial crisis, Vivendi Universal is also the target of a criminal investigation by the U.S. attorney’s office in New York and a probe by the Securities and Exchange Commission.
The investigations are further complicating efforts to restore confidence in the French media giant and are expected to parallel similar inquiries already underway in France, sources familiar with the probes said.
French prosecutors last month opened an investigation of whether the company published “false accounts” for 2000 and 2001 to hide its cash crunch from investors.
Vivendi described the investigation by the U.S. attorney’s office in the Southern District of New York as preliminary and said the SEC’s Miami office would be coordinating its own investigation with federal prosecutors.
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Disney’s Profit Increases 17%
Walt Disney Co. capped one of its most difficult fiscal years with results that showed profit rose 17% thanks in part to strong DVD and video sales of “Monsters, Inc.”
Meanwhile, Chief Executive Michael Eisner predicted 20% to 30% profit growth next year from the company’s current lethargic levels, despite continuing problems with the ABC network and soft theme park results.
The Burbank entertainment giant reported net income of $222 million, or 11 cents a share, compared to a year-earlier profit of $188 million, or 9 cents, adjusted to reflect revised accounting rules. Without the adjustment, the net income a year earlier would have been $53 million, or 3 cents a share.
Revenue in the three-month period ended Sept. 30 rose 15% to $6.7 billion.
The latest results, which Disney had telegraphed to investors, were in line with Wall Street’s lowered expectations.
The year ended Sept. 30 concludes one of the bleakest years Disney has endured in a decade, mainly because of a steep falloff in tourism to its key theme park business and weak ratings at its ABC television network.
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For a preview of this week’s business news, please see Monday’s Business section.
