The Houston Chronicle has called on a local court to make public its criminal case against three former Enron executives, including former chief financial officer Andrew Fastow.
On Tuesday the newspaper asked the 5th U.S. Circuit Court of Appeals to order Houston-based U.S. District Judge Kenneth Hoyt to release three sealed transcripts in an Enron criminal case and to stop holding closed hearings. According to the paper, Hoyt held one such hearing on July 28 and two more just last week.
“The press and public have a compelling and legitimate interest in keeping abreast of these highly newsworthy proceedings,” the Chronicle filing reportedly states. The newspaper argues that the judge has not adequately explained why he has closed the pretrial hearings and failed to use less restrictive alternatives. As a result, the closing of the hearings and sealing of transcripts is “manifestly invalid under the First Amendment,” it charges.
Hoyt has stated that he will continue to hold closed hearings, reported the Associated Press, if he deems that “shop talk” about trial preparations is “irrelevant to the public’s digestion.”
The case pending before Hoyt is against Fastow and two other former Enron finance executives, Ben Glisan Jr. and Dan Boyle. All three have pleaded not guilty to 109 charges of fraud in connection with various deals at Enron.
Over the weekend, the Chronicle reported that Glisan, Enron’s former treasurer, is trying to work out a plea bargain and cooperation agreement with federal prosecutors.
“When Glisan flips, this could be a bloodbath,” one lawyer familiar with the Enron investigation told the paper. Glisan has been described in press reports as a protégé of Fastow and ex-CEO Jeffrey Skilling. He is a former accountant at Coopers & Lybrand in Dallas, then at Arthur Andersen in Houston, before joining Enron in 1996.
According to the published account, Glisan’s Washington, D.C.-based attorneys met behind closed doors last week with three Enron Task Force prosecutors as well as Judge Hoyt. The paper said that these kinds of meetings are frequently a prelude to cooperation agreements.
Late last year Glisan agreed to pay back the $916,137 he earned after taxes through an investment in an Enron-related partnership called Southampton.
(Editor’s note: Read about how Enron’s popularity as a business-school “success story” is raising questions about how case studies are prepared.)
Many Companies Cutting Their Liability Insurance Coverage
Due to the poor economy and spiraling premiums, U.S. businesses are purchasing less liability coverage, according to a new study of 4,329 companies by insurance brokerage Marsh Inc.
Meanwhile, costs associated with injuries and court awards continued to rise, resulting in a widening gap for many businesses between their liability risk and their insurance protection.
In fact, only the largest companies maintained their limits of liability, according to Marsh. On average, the companies it surveyed reduced their insurance limits by an average of 9.4 percent.
Marsh also noted that the average cost for liability insurance increased 63.4 percent. (And as we noted in April, a fair number of seasoned buyers maintain that the reliability of corporate insurance policies has not been this shaky since the mid-1980s.)
The largest U.S. companies surveyed — those with revenues exceeding $10 billion — purchased limits averaging $335 million, about the same as in the prior-year period. Midsize firms — those with revenues of $201 million to $1 billion — cut their limits by 11.4 percent to an average of $62 million. The smallest firms in the study — those with annual revenues of $200 million or less — reduced their limits by 17.8 percent, to an average of $37 million.
“The current economic climate makes this a particularly challenging time for organizations seeking to manage or transfer their risks,” said Timothy P. Brady, a managing director of Marsh’s National Casualty Practice. “While firms are trying to do some belt-tightening, claim costs are rising unabated. In addition, it’s important to recognize that businesses are buying insurance today to cover losses they might have to pay in 2008 or later.”
There was one notable exception to the general trend of businesses reducing their liability limits.
U.S. companies that experienced losses of $5 million or more in the past five years generally maintained their insurance levels, while those not sustaining such losses reduced their coverage by 21.9 percent.
In fact, companies that sustained large losses in the past five years purchased limits of averaging $207 million, more than double the level of protection than bought by companies without such losses.
Companies in the chemical and pharmaceutical industries purchased limits averaging $190 million — the highest among all industry groupings — followed by mining and energy ($144 million), transportation equipment ($128 million), and electrical equipment and instrument manufacturers ($98 million).
At the other end of the spectrum, rubber and plastic manufacturers — which tended to be smaller companies than in other industries in the study, according to Marsh — purchased limits averaging $44 million. The construction industry ($50 million) also included a concentration of respondents with annual revenues of $5 billion or less.
Qwest Restatements Winding Down
Qwest Communications said it has essentially completed its restatement of the company’s 2000 and 2001 financial statements.
The embattled former telecom giant, which is being investigated for its accounting practices, reduced revenue by $99 million, $133 million, and $51 million for 2002, 2001, and 2000, respectively.
The 2002 reduction was primarily the result of reclassifying refunds to customers totaling $83 million from an expense to a reduction in revenue. The 2001 and 2000 restatements were largely the result of changes to accounting for certain contractual termination fees, reducing revenue by $75 million and $50 million, respectively, according to the company.
In addition, corrections to previous adjustments for optical capacity transactions decreased revenue by $2 million in 2002 and $41 million in 2001, and increased revenue by $67 million in 2000, said Qwest. The company added that the adjustments also correct errors in accounting entries or treatment that were individually or cumulatively immaterial in all periods presented.
Qwest, which is being probed by the Securities and Exchange Commission, the Department of Justice, and the U.S. Attorney’s office for the District of Colorado, also said it expects to have discussions with the SEC regarding the finalizing of its financial statements. As a result, the company said it can give no assurance that there will be no further restatements.
Including these latest adjustments, Qwest has announced restatements totaling about $2.5 billion in sales of optical network capacity, equipment, and other services in 2000 and 2001.
Meanwhile, former CFO Robin Szeliga left the company last week, according to the Associated Press.
Szeliga, the last hire of former chief executive Joe Nacchio to remain with the company, was Quest’s top finance executive for the period covered by these probes. Szeliga, who was a key witness in federal investigations of the company’s accounting practices, testified before a House subcommittee last September.
The health-care services company stated that it believes the search warrant was based on misleading information from two terminated employees who have been sued by WebMD for taking kickbacks. The company, which maintained its belief that it has not violated any laws, added that it intends to fully cooperate with the authorities and that it does not expect any impact on the company’s operations.