Former WorldCom Chief Is Charged
Bernard J. Ebbers, who as head of WorldCom Inc. was a leading figure in the 1990s telecom gold rush, was charged with securities fraud in Oklahoma, marking the first criminal action to be brought against the former corporate titan.
Ebbers, 62, was named in a 15-count document alleging that he and five other employees engaged in an extensive accounting fraud that drove WorldCom into the biggest bankruptcy filing in U.S. history. The company also was named as a defendant.
The Oklahoma case brought cheers from some investors and corporate governance experts who have been aggravated that U.S. prosecutors haven’t charged Ebbers with wrongdoing. The case reopened a battle between state and federal regulators over who should lead the crackdown on white-collar crime.
Ebbers’ attorney, Reid Weingarten, said there was “a total lack of any evidence that Mr. Ebbers committed crimes.”
Two Bidders Remain for Vivendi’s U.S. Assets
Liberty Media Corp. became the latest bidder to pull out of the auction for Vivendi Universal’s entertainment assets.
Moving into the final stages of a marathon auction process, Vivendi’s board said it decided to enter into further negotiations with the two remaining bidders: General Electric Co.'s NBC and a group headed by Vivendi Vice Chairman Edgar Bronfman Jr.
Viacom Inc., a group led by Marvin Davis, Metro-Goldwyn-Mayer Inc. and Comcast Corp. also had pulled out in recent weeks, balking at Vivendi’s $14-billion asking price.
Top Vivendi executives said this month that they expected to reach a preliminary deal with one of the bidders by Labor Day. That’s looking increasingly unlikely, however, as the French conglomerate grapples with two wildly different proposals.
Unlike NBC’s offer, Bronfman’s bid includes a huge cash component. The offers pose a stark choice for Vivendi: take the money now or postpone its exit from Hollywood for a potentially bigger payday down the line.
Credit Lyonnais Indicted in Insurer Case
A federal grand jury in Los Angeles has issued a sealed criminal indictment of Credit Lyonnais, other businesses and individuals connected to the French bank’s early-1990s acquisition of California’s Executive Life Insurance Co., according to sources familiar with the matter.
U.S. prosecutors have told targets they would lodge fraud charges publicly as early as this week, sources said.
A Credit Lyonnais spokesman said the bank had no comment on the sealed indictment.
The case stems from state Insurance Commissioner John Garamendi’s seizure of Executive Life in 1991 after he determined that junk bond losses left it insolvent. Prosecutors allege Credit Lyonnais hid its role in its 1993 purchase of Executive Life to evade regulations governing the ownership of insurers.
The bank may face regulatory penalties if found to have violated the law, Federal Reserve Chairman Alan Greenspan said.
NYSE Discloses Big Pay for Chief Grasso
In its first disclosure of an executive’s pay, the New York Stock Exchange said Chairman Richard Grasso would receive $139.5 million in accrued retirement and other benefits this year, plus a salary and bonus of at least $2.4 million.
The compensation package was made public when the NYSE announced it extended Grasso’s contract through 2007.
The size of the package sparked protests, as did the unusual contract provision allowing Grasso, 57, to pocket a huge sum in retirement money years before he might actually retire.
Under the five-year contract, Grasso’s deferred compensation, savings and retirement plan benefits were “restructured,” the NYSE said, allowing him to withdraw the benefits this year. Grasso, who has worked for the NYSE for more than 30 years, was unavailable for comment.
State Blamed for Workers’ Comp Crisis
A government report lays much of the blame for California’s workers’ compensation crisis at the feet of state officials, concluding they ignored repeated warnings that the system was spiraling out of control.
The report from the independent auditor comes as the Legislature struggles to overhaul a workers’ comp system that has lifted employers’ costs from $9 billion in 1995 to an estimated $29 billion this year.
In the report, requested by the Legislature several months ago, State Auditor Elaine M. Howle blames state officials for failing to set caps on what insurers pay for medical services or the number of visits injured workers may make to doctors, physical therapists, chiropractors and others.
Richard Gannon, administrative director of the workers’ comp division of the Department of Industrial Relations, defended the agency’s work and said many reforms being considered originated in his office.
Government Raises GDP Estimate to 3.1% Rate
The U.S. economy is picking up speed at a faster pace than previously believed, fueled by outlays for the war in Iraq and consumer spending on cars and home improvements, the Commerce Department reported.
The government revised its estimate of economic growth during the second quarter to a 3.1% annual rate, much higher than the initial estimate of 2.4% issued a month ago.
The size of the revision exceeded the expectations of private economists. And the latest estimate of growth in the quarter is more than double the 1.4% rate recorded during the two previous quarters.
But the second-quarter pick-me-up wasn’t stout enough to cause an improvement in the flagging job market. The Labor Department said initial claims for unemployment benefits rose 3,000 to a seasonally adjusted 394,000, suggesting that the economic gains of recent months haven’t prompted many employers to hang help-wanted signs in their windows.
SGI to Cut 600 Jobs, Vacate Its Headquarters
Wounded by a lingering economic downturn and competition from lower-cost rivals, computer maker Silicon Graphics Inc. said it would slash 600 jobs and vacate its expensive corporate headquarters in its latest attempt to restructure.
Combined with 400 layoffs announced in May, the cuts will amount to a 23% reduction in SGI’s worldwide workforce, to 3,400. SGI executives said the layoffs would reduce expenses sufficiently to get the company out of the red. SGI was once a leader in high-performance computing but has reported losses in 20 of the last 24 quarters.
SGI said its remaining headquarters staff in Mountain View, Calif., would leave the company’s 500,000-square-foot office. SGI will sublet the office to search engine firm Google Inc. and relocate to a nearby complex that’s about half as big.
The company said it expected to record a charge of $20 million in the current quarter to cover severance fees and other expenses associated with layoffs.
DVD Industry Wins State High Court Ruling
In a case pitting free speech rights against trade secrets, the California Supreme Court ruled that courts can prevent computer users from posting codes on the Internet that allow others to illegally copy DVDs.
The state high court held that free speech rights do not protect a computer user whose posting enables others to unlawfully download and copy movies.
The decision was a victory for the DVD and motion picture industries, which contend that movie companies lose more than $3 billion in annual sales to DVD copying and other forms of piracy. Much of the DVD losses stem from publication of the decryption code, the industry says.
The ruling stemmed from an injunction ordering computer programmer Andrew Bunner, 26, to remove a DVD decryption code from his Web site. But free speech activists helped Bunner appeal. David Greene, who represented Bunner, said his client may prevail when the case returns to the Court of Appeal in Santa Clara County to determine whether the injunction had been properly granted.
Teenager Arrested in Computer Worm Case
A Minnesota teenager was arrested and accused of distributing a destructive computer infection that threatened a key Microsoft Corp. Web site this month and ensnarled computer networks around the globe.
Federal law enforcement officials said the 18-year-old suspect, identified in court papers as Jeffrey Lee Parson of Hopkins, Minn., allegedly created a variant of the Blaster computer worm that infected thousands of computers this summer by exploiting flaws in Microsoft’s popular Windows computer operating system.
Neither Parson nor his parents could be reached for comment. Parson is scheduled to appear at a Sept. 17 hearing in U.S. District Court in Seattle. He faces up to 10 years in prison and a $250,000 fine.
John McKay, U.S. attorney for the Western District of Washington State, would not say whether other arrests were imminent, saying only that “the investigation is ongoing.”
Sale of Office Building Sets Downtown Record
A Los Angeles real estate firm bought 801 Tower, a high-rise in the financial district, for $105 million, the highest purchase price on a square-foot basis ever recorded for a downtown office building.
Family-owned Mani Bros. paid about $240 a square foot for the distinctive 24-story pink granite tower at Figueroa and 8th streets, partner Simon Mani said. CommonWealth Partners and the California Public Employees’ Retirement System were the sellers.
The price for 801 Tower reflects the financial district’s improving status as a cultural and residential area and transit hub, said real estate broker Bob Safai of Madison Partners, who represented the buyers in the deal.
Recent downtown office purchase prices included $190 a square foot for BP Plaza, $172 a square foot for Union Bank Plaza and about $200 a square foot for KPMG Tower, according to real estate data tracker CoStar Group.
801 Tower is 95% leased. Tenants include Chubb Group of Insurance Cos., law firm Squire, Sanders & Dempsey and Zucca restaurant, according to CoStar.
For a preview of this week’s business news, please see Monday’s Business section.