Week in Review
Enron’s Former Chief
of Finance Surrenders
Andrew S. Fastow, the alleged financial mastermind behind the Enron Corp. scandal, turned himself over to the FBI to face criminal charges that he pocketed millions of dollars while orchestrating a maze of illegal partnerships and secret deals.
The development caps a stunning fall for Fastow, 40. Once one of the most respected chief financial officers on Wall Street, he has become a symbol of corporate greed.
Still unknown is whether Fastow will turn on his former bosses. The criminal complaint begins a dance between Fastow and federal prosecutors over whether he will attempt to bargain away some charges by offering to implicate former Enron Chief Executive Jeffrey K. Skilling and former Chairman Kenneth L. Lay.
By filing a criminal complaint and not moving immediately with an indictment, federal prosecutors are giving Fastow a last chance to cooperate, attorneys say.
Faneuil Pleads Guilty
in Stewart Stock Case
Douglas Faneuil, an assistant to Martha Stewart’s stockbroker, pleaded guilty to a single misdemeanor charge, admitting that he was offered money, plane tickets and an extra week of vacation to keep mum that Stewart had been tipped off to inside information regarding her ImClone System Inc.’s shares.
The plea by the Merrill Lynch & Co. broker’s assistant was part of a deal to testify in the investigation of Stewart and her dumping of $228,000 of ImClone shares in December.
Stewart sold her 3,928 shares of ImClone on Dec. 27, just before the price nose-dived on news the Food and Drug Administration would not approve the company’s anti-cancer drug, Erbitux.
Stewart has denied wrongdoing in the sale of ImClone shares and has maintained that she had a standing order with Faneuil’s supervisor, Peter Bacanovic, to sell the stock if the price went below $60.
Neither Stewart nor Bacanovic was named in the indictment, but the nine-page misdemeanor information describes his superior as a “Financial Advisor” and Stewart as “the Tippee.” Both Faneuil and Bacanovic also were fired by Merrill for violating company rules.
Unemployment Rate
Falls Unexpectedly
The nation’s unemployment rate unexpectedly fell to 5.6% in September, diminishing the prospect that the Federal Reserve would cut interest rates before its next policy meeting in November.
The jobless rate fell from 5.7% in August and was the lowest since February. August payrolls grew by 107,000, almost three times the amount estimated a month ago. In September, 43,000 jobs were lost, the Labor Department said. The number of hours worked rose more than in any month since January 2001, before last year’s recession began.
Unexpected declines in manufacturing led investors to speculate that Fed policy makers would cut the benchmark overnight bank lending rate before their next scheduled meeting Nov. 6.
Another Weekly Loss
for Stock Market
The stock market posted its sixth straight week of losses, thanks in part to a hail of dismal outlooks from companies including data storage giant EMC Corp. and a record $28-billion judgment against cigarette leader Philip Morris Cos.
A mixed reading on the job market in September and continuing fears of a war on Iraq added to market jitters.
Philip Morris, also a Dow 30 stock, sank 7% and sparked a fresh round of selling after a jury ordered the world’s largest cigarette maker to pay $28 billion in damages to a woman with lung cancer.
For the week, the Nasdaq fell almost 5%, the Dow lost more than 2% and the S&P; 500 surrendered more than 3%.
For the Nasdaq and S&P; 500, it was the longest string of losing weeks since the first half of 2001.
Global Chairman Defends Stock Sale
Global Crossing Ltd. Chairman Gary Winnick told a congressional panel that he was unaware his company was in dire financial straits when he pocketed nearly $124 million by selling company stock last year. He sought to make amends by pledging $25 million of his own money to compensate workers whose retirement savings were depleted as the share price slumped to mere pennies.
But members of the House subcommittee on oversight and investigations disputed Winnick’s portrayal of himself as a detached leader who was not active in the company’s day-to-day affairs.
Instead, they said, Winnick was “well aware” of the telecommunications upstart’s controversial practice of “swapping” transmission capacity on its network with other firms to boost revenue.
It was the first time the Los Angeles telecom mogul had spoken publicly about Global since the company filed for Chapter 11 bankruptcy protection in January. He was subpoenaed by the committee.
Executives Sued
for IPO Profits
Five telecom industry executives, including Los Angeles sports mogul Philip F. Anschutz and former WorldCom Inc. Chief Executive Bernard J. Ebbers, were sued by the state of New York on allegations that they steered business to a big Wall Street brokerage in exchange for hot stock offerings.
The civil suit filed by New York Atty. Gen. Eliot Spitzer alleges that the men directed corporate finance work for their firms to Salomon Smith Barney, the brokerage arm of Citigroup Inc., in return for sweetheart deals on initial public stock offerings.
Wall Street’s practice of personally rewarding executives with coveted IPOs is known as “spinning” and is the subject of several probes by state and federal regulators. Spitzer is the first regulator to bring formal charges.
The complaint seeks the disgorgement of $28 million in profits made when the executives sold their IPO shares.
Courtney Love Settles Suit Against Vivendi
Rock singer Courtney Love, who sued the world’s biggest music company to expose the record industry’s allegedly corrupt business practices, settled her lawsuit amid questions about the future of the artists rights movement she helped launch.
After Love sued Vivendi Universal’s Universal Music Group last year to break her band’s contract, the widow of Nirvana singer Kurt Cobain complained about the “unconscionable and unlawful” business and accounting practices of the major record labels.
Since then, dozens of stars have lined up to demand better contracts, health benefits and other reforms.
But after a series of legal setbacks, Love agreed to a settlement that releases her from her record contract and provides her with ownership of several unreleased recordings by her band, Hole.
Disney Picks Paris Veteran to Run Parks
Walt Disney Co. Chief Executive Michael Eisner named the head of Euro Disney to take over as head of the company’s core theme park division.
James A. Rasulo, credited with helping to turn around the European park, succeeded Paul Pressler, who resigned to run Gap Inc. Rasulo’s appointment was a surprise as many expected Walt Disney World President Al Weiss to replace Pressler.
Disney Chairman Downplays Growth
Walt Disney Co. Chairman Michael Eisner said the stock market has overreacted to Disney’s problems. But the recovery he is forecasting, analysts say, underscores just how tough times have been for the once-dominant entertainment giant.
In a speech at a Goldman Sachs & Co. investor conference in Manhattan, Eisner said he expects Disney to post strong double-digit growth in earnings per share in 2003. The consensus of analysts surveyed by Thomson First Call is for Disney to earn 56 cents a share in fiscal 2002, which ended Monday, and 71 cents a share in fiscal 2003.
That would be a 27% increase, easily meeting Eisner’s double-digit standard.
On the other hand, the company earned 95 cents a share as recently as 1997, and nobody is projecting a quick return to that territory.
Veteran Portnow Named
Grammy President
Veteran record executive Neil Portnow was named president of the Grammy organization, the Santa Monica-based nonprofit that has been engulfed in controversy for years.
Portnow, 53, according to people who have worked with him, is a low-key diplomat who probably will offer a drastically different management style than his predecessor, C. Michael Greene, who resigned this year amid misconduct allegations.
Portnow, formerly chief of West Coast operations for Zomba Group, declined to spell out his plans for the National Academy of Recording Arts & Sciences, as the Grammy organization is officially known. He is expected to start his new job in the next few weeks.
Development Planned
for Downtown Anaheim
A Los Angeles developer that played a role in the revitalization of Santa Monica’s Third Street Promenade, Old Pasadena and Birch Street in Brea is looking to do the same thing for downtown Anaheim.
CIM Group plans to build a $65-million project of apartments, stores and a new library in the historic blocks around City Hall in Orange County’s second-largest city.
The city’s Redevelopment Agency is negotiating with CIM to redevelop three sites along Broadway Avenue.
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For a preview of this week’s business and economic news, please see Monday’s Business section.
