WEEK IN REVIEW
Firms Observe 9/11 in Diverse Ways
Flags flew at half-staff outside McDonald’s Corp. restaurants. Kmart Corp. opened late. General Motors Corp. did not advertise. Retailers posted slower-than-usual sales. Theme park-goers participated in moments of silence at Universal Studios. And auction Web site EBay displayed a virtual flag on its home page.
These were all signs that, despite President Bush’s urging that Americans go on with their lives, business was anything but usual on the one-year anniversary of the terrorist attacks.
From office towers to factory floors, workers held silent vigils and gathered around televisions to watch coverage of Sept. 11 observances, inventing a variety of ways to commemorate the date.
Companies set aside rooms for quiet reflection or spirited conversation. Some employers allowed workers to take time off without pay, and a few even paid them to stay home.
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Former Executives at Tyco Are Indicted
Two former Tyco International Ltd. executives were accused of systematically looting the conglomerate in a scheme that allegedly netted them more than $600 million.
In a criminal indictment and a civil suit filed in New York, prosecutors charged that L. Dennis Kozlowski, Tyco’s former chief executive, and Mark H. Swartz, its former chief financial officer, stole $170 million from Tyco by granting themselves loans and bonuses that were not authorized by the company’s directors.
The charges, brought jointly by the Manhattan district attorney and the Securities and Exchange Commission, are the latest moves by prosecutors in what has been a wave of fraud allegations directed against executives who once were among the most highly regarded leaders in corporate America.
A third Tyco executive, former chief corporate counsel Mark A. Belnick, was separately charged with falsifying business records to conceal company loans of more than $14 million, which he allegedly used to buy homes.
The three men pleaded not guilty to the charges.
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Greenspan Warns on Federal Deficit
Federal Reserve Chairman Alan Greenspan told a House panel that the U.S. economy has borne up surprisingly well under the blows of terror attacks, a stock crash and a sharp retreat in business investment but faces a new threat in looming federal deficits that could raise interest rates.
Greenspan said Congress should extend federal spending controls that are widely credited with having helped produce four straight years of budget surpluses but are set to expire at the end of this month.
He sidestepped the politically charged question of whether the need for renewed fiscal restraint required undoing portions of President Bush’s 10-year, $1.6-trillion tax cut, which Congress approved last year. He also declined to speculate on the economic cost of a protracted war with Iraq.
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Fed Official Urges Execs to Cut Own Pay
A senior Federal Reserve official used a Sept. 11 memorial service on Wall Street to excoriate U.S. corporate executives for paying themselves too much and called on business leaders to cut their own compensation.
Quoting the biblical admonition to “love thy neighbor as thyself,” William J. McDonough, president of the New York Federal Reserve Bank and a possible successor to Fed Chairman Alan Greenspan, said executive pay has ballooned beyond all reason and threatens public support for free-market institutions.
McDonough is not the first financial leader to criticize executive pay--Greenspan and Goldman Sachs Chairman Henry M. Paulson Jr. made somewhat similar comments this year. But by linking the issue to Sept. 11 and framing it in moral terms, rather than as simply a business decision, McDonough may have raised the stakes in the debate over who runs U.S. corporations for whose benefit.
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FCC Begins Reviewing Media-Ownership Rules
The Federal Communications Commission kicked off a comprehensive review of the government’s long-standing media-ownership rules, with a majority of commissioners signaling that they support relaxing or consolidating at least some of the decades-old restrictions.
Among other things, the current rules prohibit companies’ owning TV stations and newspapers in the same market, prevent TV station owners from reaching more than 35% of the national audience and limit the ownership of local radio stations.
The step by the FCC was largely a formality.
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Mortgage Foreclosure Rate at 30-Year High
The percentage of homeowners who fell behind on their mortgage payments in the second quarter surged to the highest level in at least 30 years, as more Americans lost their jobs and home prices continued to rise sharply, a mortgage banking group said.
The surge could signal that an increasing number of buyers have paid more for their homes than they can afford, analysts said. The misuse of home equity loans and the increase of no-money-down loan programs also may have contributed to the increase in defaults, economists said.
From April through June, the percentage of loans on which foreclosures were started rose to 0.40%, up from 0.37% the previous quarter, according to Mortgage Bankers Assn. of America figures. That is the highest level since the organization started tracking mortgage defaults in 1972.
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Adelphia Withholds Severance From Rigas
Adelphia Communications Corp. won’t make $4.2 million in payments to John J. Rigas under a severance agreement reached when the cable TV systems company founder and former chief executive stepped down in May, according to a person who was briefed on the situation.
No payments had been made under the agreement, said the person, who agreed to speak on condition of anonymity. The company has been operating under bankruptcy protection since June.
The reversal comes as WorldCom Inc. weighs rescinding the severance of former CEO Bernard J. Ebbers.
Adelphia agreed to a three-year package for Rigas in May, two months after the company disclosed that it had guaranteed $3.1 billion in loans to partnerships controlled by his family. Since then, Adelphia, with $20 billion in debt, has filed for bankruptcy protection and filed a racketeering suit against the Rigases.
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Criminal Probe of Martha Stewart Urged
House leaders asked the Justice Department to launch a criminal probe of Martha Stewart, saying she may have misled investigators about her sale of a biotech stock.
The House Energy and Commerce Committee has been investigating whether Stewart, chief executive of Martha Stewart Living Omnimedia Inc., relied on inside information when she sold nearly 4,000 shares of ImClone Systems Inc. a day before the pharmaceutical company disclosed that its cancer drug, Erbitux, had been rejected by the Food and Drug Administration.
Committee Chairman W.J. “Billy” Tauzin (R-La.) said Stewart’s phone records and other information obtained by investigators indicate she may have given the committee false details about the Dec. 27 stock transaction, which netted her $229,522.
Stewart has not been charged with a crime and has said she did not engage in any illegal activity.
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Judge OKs Liquidation Plan for First Alliance
A federal judge approved a liquidation plan for First Alliance Corp., putting the finishing touches on a settlement that will yield at least $75 million to borrowers and their lawyers who contended that the Irvine home-equity lender routinely cheated its customers.
The settlement includes $20 million from First Alliance founder Brian Chisick and his wife, Sarah, with the rest coming from the assets of the company. After a $15-million payment to attorneys, the 18,000 borrowers will receive checks totaling at least $60 million. That’s an average of $3,300 each, though individual payments will vary widely.
First Alliance, which never admitted wrongdoing, filed for Chapter 11 bankruptcy protection in early 2000.
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Intel Unveils Details of Chip for Laptops
Seeking to stay relevant in a world of evolving technology, Intel Corp. unveiled details of a chip it will introduce next year designed just for laptops, the only bright spot in an otherwise grim computer market.
Called Banias, the chip is Intel’s costly attempt to keep up with a new era of computing in which consumers will be less reliant on their desktops, the firm’s traditional stronghold.
Intel envisions consumers using a panoply of devices designed to be always on, portable and wireless.
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AOL Earnings to Fall Short of Forecasts
AOL Time Warner Inc. warned that the outlook for its America Online unit is bleaker than it appeared just two months ago, blaming a lingering Internet advertising slump that still is eroding revenue.
The New York-based media giant stressed that the parent company’s overall projected revenue and cash-flow figures for 2002 have not changed. But it said the Dulles, Va.-based Internet unit would earn less than it estimated in July.
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For a preview of this week’s business and economic news, please see Monday’s Business section.
