TOP STORIES -- May 23-28
Edison Scam Was Broader Than Disclosed
A scheme that helped Southern California Edison hide poor service and win $28 million in bonuses by rigging customer surveys was carried out by far more employees and stretched higher into the management ranks than the utility had publicly disclosed.
Current and former employees say the scam was pervasive, driven by chronic understaffing and intense pressure to doctor survey results so the utility wouldn’t incur service penalties and so bosses could pocket bonuses.
At the state Public Utilities Commission, which plans to launch an investigation into the scandal, the Rosemead-based company, a subsidiary of Edison International, could be on the hook for millions of dollars in refunds and penalties. The company also could see its pending rate increases reduced.
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Spitzer Sues Ex-Chief of NYSE Over Pay Package
New York Atty. Gen. Eliot Spitzer sued former New York Stock Exchange chief Richard Grasso, alleging that he used deception and intimidation to take home at least $100 million more in pay than he was entitled to.
Grasso, 57, was forced out as chairman and chief executive of the exchange in September after it was revealed that a month earlier he had been paid $139.5 million in bonuses and retirement benefits accumulated almost entirely since 1999, and that he was owed $48 million more.
Showing little inclination to settle the accusations, Grasso said in a Wall Street Journal op-ed piece that Spitzer’s suit was motivated by political ambition. He called the behavior of his accusers “immoral and dishonest” and said they had “besmirched” his name.
Grasso said he would sue the NYSE for the $48 million still owed him and would donate the net proceeds to charity if he won.
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Oil, Gasoline Prices Reach New Heights
Oil and gasoline prices hit new highs Monday, sparking warnings that this may be the most expensive summer ever at the pump.
Shrugging off news that more oil was on the way, traders in New York sent the cost of benchmark crude up $1.79 to a record close of $41.72 a barrel. Regular gas for June delivery closed Monday at a record $1.458 a gallon, up 4.1 cents on the New York Mercantile Exchange.
California’s average price for self-serve regular leaped 5.5 cents during the previous week to $2.324 a gallon, and the nationwide average jumped 4.7 cents to $2.064 a gallon -- a record high in both cases, according to a survey by the U.S. Energy Information Administration.
Adjusted for inflation, however, both the oil and the gasoline prices are lower than they were in the early 1980s.
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SBC, Union Agree to 5-Year Contract
SBC Communications Inc. and its largest union agreed to a five-year labor pact that provides greater job security and gives workers access to positions in growing divisions while saving California’s dominant local phone company about $2 billion.
The tentative settlement was reached as 100,000 members of the Communications Workers of America returned to work after a four-day strike.
The CWA agreed to slightly lower annual pay increases in exchange for SBC slowing increases in workers’ out-of-pocket medical expenses. The company will continue to pay union members’ premiums for health insurance.
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E! Networks CEO Quits as Probe Surfaces
Mindy Herman, the president and chief executive of E! Networks, resigned in the wake of an investigation into complaints that she abused her power and created a climate of fear.
Comcast Corp., the cable giant that controls E!, last year launched an investigation and an audit of E! Networks after receiving two anonymous letters that complained of wrongdoing by Herman, sources said. An E! Networks spokeswoman said Herman always acted appropriately during her tenure, which lasted four years.
Among the complaints were allegations that Herman, 42, improperly allowed company funds to be used for a lavish baby shower last fall attended by about 150 staffers. After learning about the letter, Herman reimbursed the company $8,000, a network spokeswoman said.
Herman also used a redecorating program on the Style network to turn a bedroom in her Malibu home into a nursery for her newborn. An E! spokeswoman said Comcast approved of her role in the program. Comcast would neither confirm nor deny whether it had given its approval.
Herman will leave with a stock payout of $20 million, according to insiders.
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PUC Gives Protections to Phone Customers
A divided state Public Utilities Commission approved the nation’s first “bill of rights” to protect wireless and other telephone customers from deceptive marketing and billing.
The PUC voted 3 to 2 on a compromise proposal meant to take into account the objections of the largely unfettered wireless industry. But it left consumer advocates dissatisfied, wireless companies upset and Gov. Arnold Schwarzenegger disappointed.
Among other things, the rules provide a 30-day trial period allowing customers to test products and calling plans and to return them without paying penalties. The rules also require clearly organized billing, specific disclosures, and writing that is unambiguous and in a minimum 10-point type size. Deceptive, untrue and misleading marketing is prohibited.
For his part, the governor worried about whether the bill of rights would impede economic growth in the competitive wireless industry and lead companies to shift investments and jobs out of California.
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Assembly OKs Increase in Minimum Wage
The minimum wage in California would climb nearly 15% over the next 18 months to $7.75 an hour under legislation approved by the Assembly.
Passage in the Assembly was the biggest hurdle for the bill, which is expected to slide through the more liberal state Senate. Aides to Gov. Arnold Schwarzenegger said he had not taken a position on the bill.
The state’s current minimum wage is $6.75 an hour, which for a 40-hour workweek equals an annual income of $14,040. The Assembly legislation would increase the minimum wage in California by 50 cents in January, to $7.25 an hour, and then to $7.75 an hour in January 2006. California is one of 10 states with a minimum wage higher than the federal minimum of $5.15 an hour.
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SEC Cracks Down on Mutual Fund Managers
The Securities and Exchange Commission ruled that mutual fund managers must report any personal trading they do in the funds they oversee, counting on greater disclosure to help prevent trading abuses that plunged the industry into scandal last year.
The changes were designed to prevent abusive trading strategies, including the rapid in-and-out trading technique known as market timing, which burdens funds with extra costs and siphons profits from other shareholders. Regulators also want to crack down on after-hours trading, in which favored investors are allowed to unfairly exploit price changes after the market close.
Under the new rule, managers would have to report personal trades to their firm’s compliance officer, making it easier for regulators to track any misconduct.
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Judge Allows Claim Against Tobacco Firms
Dealing the big tobacco companies a legal setback, a federal judge ruled that the Justice Department could pursue a claim for $280 billion in allegedly ill-gotten gains as part of its fraud and racketeering case against the industry.
The decision by U.S. District Judge Gladys Kessler in Washington rejected industry efforts to scuttle the most threatening part of the government’s case, which is scheduled to go to trial Sept. 13. The $280-billion figure represents 30 years of revenue from sales to smokers under 21, adjusted for inflation.
Kessler’s ruling only assures that Justice Department lawyers will have a chance to prove their case at trial. Even so, tobacco stocks plummeted on news of the decision.
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Wells Fargo to Buy Key Assets of Strong
Beefing up its mutual fund and asset-management business, Wells Fargo & Co. said it would buy the key assets of Strong Financial Corp., whose founder, Richard Strong, agreed last week to pay $60 million to settle charges that he made improper trades in his company’s funds.
The purchase includes $27 billion in assets held by Strong Capital Management Co., the firm’s mutual fund manager. That will boost Wells’ total mutual fund assets to $103 billion, putting the San Francisco financial company among the nation’s top 20 fund operators.
Wells also is buying $7 billion in other investment accounts from Wisconsin-based Strong.
The deal, which had been expected, helps advance Wells Chairman Richard Kovacevich’s strategy of selling customers a broad range of financial services so that the firm, which includes the nation’s fifth-largest bank, isn’t dependent on any single product such as mortgages.
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From Times Staff
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For a preview of this week’s business news, please see Monday’s Business section.
