VideoLast week, former Tyco Intl. CFO Mark Swartz was hauled off to the Manhattan District Attorney's office, where he was charged with stealing $170 million from the once high-flying conglomerate. In the weeks before Swartz's arrest, former WorldCom CFO Scott Sullivan and former Adelphia CEO John Rigas also found themselves on the wrong end of government indictments.
But apparently, these three high-profile cases only marked the opening salvo of the government's assault on corporate crime. It appears that more corporate executives will be charged with corruption over the next few weeks.
Or at least, that was the message delivered by Securities and Exchange Commission chairman Harvey Pitt the same day that Swartz and ex-Tyco CEO Dennis Kozlowski were arrested and charged with grand larceny and securities law violations.
"I expect this week and in the following weeks we will see more high-profile indictments of people who abused their public trust," Harvey Pitt told BBC radio in an interview last Thursday. "A number of high profile officials will find themselves in the spotlight for potential criminal sanctions like jail time."
Who are the possible candidates?
There don't seem to be too many left, actually. Federal officials have already indicted former executives from Tyco, Enron, WorldCom, Adelphia, RiteAid and ImClone.
Of course, the heat is intensifying under Martha Stewart, who is currently being investigated for alleged insider trading violations stemming from her sales of ImClone stock.
Other high-profile execs who are reportedly in the cross-hairs of the Justice Department and SEC include former Enron CFO Andrew Fastow and Enron executives Jeffrey Skilling and Kenneth Lay. The two agencies are also reportedly probing Global Crossing, along with WorldCom's Bernard Ebbers.
Even Federal Reserve Chairman Alan Greenspan was moved to comment on the rash of scandals involving top corporate executives. Last week, Greenspan reportedly said: "There were a large number of egregious acts . . . larger than I would like to have seen. The problem essentially rested with the chief executive officer and those chief executive officers who [wanted] to spin the accounting system in order to give the impression of success where success did not exist."
Corporate Crisis Counseling
How prepared is your company for a major calamity? Does it have a plan in place to deal with one?
Turns out 47 percent of companies responding to a KPMG survey said they do not have a crisis preparedness plan in place. What's more, 20 percent didn't even rate crisis preparedness as a priority.
"These numbers surprised us, considering that how well you prepare for a crisis of any magnitude can make or break your organization in the marketplace if a major event does occur," said Stuart Campbell, U.S. partner in charge for KPMG's risk and advisory services practice. "With the definition of corporate crisis having been rewritten so many times in the past year, companies should no longer soft-pedal crisis planning."
The widespread unpreparedness is disturbing, given that 81 percent of respondents said they continue to believe that their companies are susceptible to a serious breach in operations.
Remarkably, 94 percent said they were confident or very confident that they could rebound swiftly from an interruption to business.
A strange response, considering about half of the respondent said they do not have an established process to analyze crisis preparedness.
"How would they know if they can rebound quickly, when fewer than half have adopted a process for analyzing their preparedness?" Campbell asks. "Companies that emphasize recovery over planning are engaging in flawed thinking. The focus should be on preventive measures and proactive control."
KPMG also pointed out that 17 percent of respondents said that board members are not involved in crisis preparedness.
One final number to contemplate: 40 percent of businesses that suffer a disaster go out of business within two years, according to KPMG.
KPMG surveyed top-ranking executives, including chief executive officers, chief financial officers, chief operating officers and chief risk officers, of 135 companies with $500 million or more in revenue. It should be noted that KPMG offers risk management and disaster recovery consulting services.
Signs of IPO Life?
Corporate executives and investment bankers will be closely watching developments concerning Liposcience Inc., a money-losing biotech company that plans to go public this Thursday.
If the cardiovascular diagnostics company is able to sell the anticipated $75 million of shares as planned, it will be the first successful IPO since mid-August -- and only the second initial public offering in eight weeks.
"Is it a test? Of course it is. I haven't seen a biotech company go public in months," Sal Morreale, who follows IPOs for Cantor Fitzgerald, told Reuters.
It's interesting that Liposcience is the one to test the markets. It's losing money, having trouble collecting money from patients, and recently lost one of its biggest clients, clinical laboratory company Quest Diagnostics Inc. Quest Diagnostics accounted for 27 percent of Liposcience's sales during the first six months of 2002, according to published accounts.
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