TOP STORIES -- July 4-9
Stock Indexes Fall as Tech Woes Pile Up
Investors were increasingly pessimistic as profit warnings piled up last week from the technology sector.
For the week, the Dow Jones industrial average was down 0.7%, the Standard & Poor’s 500 index shed 1.1%, and the tech-laden Nasdaq composite dropped 3%.
Maker of data storage software Veritas Software Corp. said its sales and profit in the quarter ended June 30 were below analysts’ estimates, as orders from businesses failed to reach expected levels. PeopleSoft Corp. also said that it expected to report second-quarter profit below forecasts. Two other software giants -- Siebel Systems Inc. and BMC Software Inc. -- also warned about disappointing results.
However, most analysts remain upbeat, expecting earnings growth of 18% to 20% overall for the S&P; 500. On Friday, better-than-expected earnings from General Electric Co. brought buyers back to the market.
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Jury Indicts Former Enron Chairman Lay
Kenneth L. Lay, who presided over Enron Corp. as it turned into one of the biggest financial scandals of the era, was indicted by a federal grand jury in Houston. The man who was Enron’s chairman and chief executive for 15 years manipulated earnings, backdated documents, disguised debt, overvalued assets and lied to employees and securities analysts, the government charged in a 65-page indictment.
“I continue to grieve ... over the loss of the company, my failure to be able to save it and the tremendous hardship that it caused so many,” Lay said. “But failure does not equate to a crime.” Lay posted an unsecured bond of $500,000.
Enron’s downfall in late 2001 deprived thousands of employees of their jobs and pensions, destroyed tens of billions of dollars in market value and pulled back the curtain on a dizzyingly complex fraud scheme.
In a related action, the Securities and Exchange Commission filed civil charges against Lay, accusing him of insider trading and fraud.
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Rigas, Son Found Guilty in Adelphia Fraud Trial
In a big win for corporate crime fighters, a New York federal jury convicted Adelphia Communications Corp. founder John J. Rigas and his son Timothy of looting the now-bankrupt cable TV company and lying to investors about its finances.
The jury found John Rigas, 79, and Timothy J. Rigas, 48, guilty of conspiracy, bank fraud and securities fraud after eight days of deliberations that followed an 18-week trial. The two face prison terms of up to 30 years.
U.S. District Judge Leonard B. Sand declared a mistrial in the case of Michael J. Rigas, after jurors said they were deadlocked on charges against him of securities fraud and bank fraud. Jurors had found Michael Rigas, 50, not guilty of conspiracy and wire fraud charges.
Former finance executive Michael C. Mulcahey, 46, was found not guilty on all counts.
“We’re pleased for Michael Mulcahey but disappointed for Tim Rigas and hope we get a better result in another court,” said Timothy Rigas’ lawyer, Paul R. Grand, implying that he would file an appeal.
Peter E. Fleming Jr., John Rigas’ lawyer, declined to comment except to say: “We’ll be here tomorrow.”
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Gains in California Payrolls Slow in June
California’s employment engine sputtered in June, producing a disappointing increase in new jobs that suggested that the state’s economic growth may have slowed last month along with the that of the nation.
Nonfarm payrolls in California grew by 12,300 in June, according to the latest figures. That compared with a revised gain of 33,200 jobs in May and mirrored an unimpressive national job increase last month.
Unemployment, meanwhile, fell to 6.2%, down from 6.3% in May and 6.8% a year earlier.
Economists, however, suggested that the June job slowdown was a temporary blip, caused by such factors as high gasoline prices and rising mortgage rates. Also, seasonal factors in June, such as the entrance of students into the workforce, often cause statistical errors in job estimates that will be revised upward later, they said.
One encouraging sign: California’s job growth finally has caught up with the nation’s hiring pace and is expected to surpass it soon.
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Judge Denies Retrial for Martha Stewart
A federal judge denied Martha Stewart’s request for a new trial, declaring that the evidence against her was so “overwhelming” that the alleged perjury of a government witness did not compromise her March 5 criminal conviction.
The 43-page ruling by U.S. District Judge Miriam Goldman Cedarbaum clears the way for Stewart to be sentenced on Friday for lying to government investigators about a 2001 stock sale. Legal experts say she is likely to get a term of 10 to 16 months.
Defense attorneys have argued that the alleged perjury of a government ink expert tainted the jury and necessitated a new trial for Stewart and her former stockbroker, Peter Bacanovic.
But Cedarbaum said there was “ample” proof of Stewart’s and Bacanovic’s guilt.
Stewart’s lead attorney, Robert Morvillo, said he was “very disappointed” by the ruling and vowed to appeal.
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China Agrees to End Tax Break on Chips
China agreed to end a tax break that the U.S. had complained discriminated against the United States and other foreign semiconductor manufacturers, settling a high-profile dispute and possibly easing trade tensions between Beijing and Washington.
The agreement, announced by U.S. Trade Representative Robert B. Zoellick, ends the first-ever World Trade Organization case filed against China. American chip makers had argued that China, already the world’s third-largest and fastest-growing chip market, was using the preferential tax treatment to unfairly support its bid to become a major supplier of semiconductors, the small devices the control virtually all electronic products.
The latest chip agreement will end a program under which semiconductors produced or designed in China were eligible for partial rebates from a 17% value-added tax. Under the accord, payments to companies already taking advantage of the tax break will stop by April 1, 2005.
U.S. Trade Representative Zoellick said the agreement would “ensure that our high-tech firms have full access to one of our fastest-growing markets.”
Comment from trade officials in Beijing was not available.
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FTC Probing Shell’s Plan to Shut Refinery
The Federal Trade Commission has launched a formal antitrust investigation into Shell Oil Co.’s plan to close its Bakersfield refinery, an agency official said, stepping up scrutiny of a move that California officials believe will worsen the state’s gasoline supply woes.
The oil company on July 1 reduced crude oil processing at the refinery to levels 19% below capacity, according to an internal Shell document obtained by The Times and a plant employee who asked not to be identified. A Shell spokesman would not say whether the facility was running at full capacity.
Politicians, consumer groups and other critics have accused Shell of plotting to shutter the refinery to tighten gasoline and diesel supplies and, in turn, boost retail prices as well as profit at the company’s two other California refineries.
Shell has said its decision to close the Bakersfield plant Oct. 1 was based on economic factors and crude oil supply problems.
Shell spokesman Stan Mays said the company had been cooperating with the FTC but had not received any subpoenas on the Bakersfield matter.
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Nielsen Rolls Out New ‘People Meters’ in L.A.
Los Angeles’ television landscape could be on the verge of a dramatic shift.
Starting last week, TV ratings giant Nielsen Media Research planned to switch to “people meters” in the Los Angeles market, potentially altering the way advertisers spend more than $2 billion for local airtime.
Nielsen plans to generate local ratings daily with meters that have been installed in nearly 800 homes in the region. The meters electronically record what programs are being watched.
Some networks and a coalition of community groups have lobbied Nielsen to delay the switch. They say Nielsen’s sample audience underrepresents Latinos and African Americans, producing faulty results. Leading the charge have been News Corp., which owns Fox Broadcasting Co.; Viacom Inc.’s CBS network; Spanish-language Univision Communications Inc.; and TV station owner Tribune Co., which also publishes the Los Angeles Times.
But Nielsen, owned by Dutch publishing conglomerate VNU, emphasized that its ratings sample was accurate and that it planned to move forward.
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Unocal Gasoline Patents to Face New Review
The Federal Trade Commission reinstated civil antitrust charges against Unocal Corp. over the oil company’s patents for cleaner-burning gasoline in California. The FTC and other critics contend that those patents would saddle state motorists with higher fuel prices.
The five-member panel voted unanimously to overturn a ruling made in November by an FTC administrative law judge, who found that Unocal’s actions were immune from antitrust prosecution. That decision was appealed by the FTC’s staff to the commission members.
At issue are several patents held by El Segundo-based Unocal that critics allege give the company an illegal monopoly over California’s unique formula for cleaner-burning gasoline.
The case now goes back to an FTC administrative law judge for further proceedings on its merits.
“The bottom line is there is no finding of fact by this commission,” said Unocal spokesman Barry Lane. “Ultimately, we expect to prevail in this venue as we have in every other venue.”
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For a preview of this week’s business news, please see Monday’s Business section.
