Risk & Compliance

Andrew and Lea Fastow Seeking Plea Deals

Also: Ogilvy CFO resigns in wake of fraud charges; Acting Boeing CFO made permanent; Qwest for indictments; Walt Disney Co. approves governance mea...
Stephen TaubJanuary 8, 2004

Former Enron chief financial officer Andrew Fastow and his wife, Lea, are negotiating plea bargains that would result in time behind bars for the couple, according to the Houston Chronicle.

The deals being discussed call for Andrew Fastow to serve 10 years in prison and Lea Fastow to serve five months, reported the paper, citing sources close to the case. In November, a plea deal collapsed that also would have sentenced Lea Fastow to five months, which would have enabled her to be out of jail by the time her husband’s trial began on April 20.

The currently proposed deals could also collapse, warned the Chronicle, since two federal judges, prosecutors, and the defendants all must agree on the details. U.S. District Judge Kenneth Hoyt must sign off on an Andrew Fastow plea bargain, and U.S. District Judge David Hittner must agree to a Lea Fastow plea bargain.

In the face of apparent plea negotiations, 250 prospective jurors have been called to the courthouse Thursday morning to answer a questionnaire to determine whether they qualify as jurors in Lea Fastow’s trial on six criminal charges, scheduled to open on February 10.

The Chronicle reported that a family friend previously said Lea Fastow is willing to consider pleading guilty and forgo a chance to tell her side to a jury because it would be better for her two small children, who might otherwise face time without either parent at home.

Andrew Fastow would be the highest-ranking Enron executive to plead guilty in the criminal investigation of the company’s collapse; Lea Fastow is a former assistant treasurer. No details are publicly available on how they may be aiding prosecutors in understanding what happened at Enron or what roles may have been played by former chairman Kenneth Lay and former CEO Jeffrey Skilling. Neither Lay nor Skilling have been charged with any crimes.

Ogilvy CFO Resigns in Wake of Fraud Charges

Thomas Early, the chief financial officer of Ogilvy & Mather’s New York office, has resigned in the wake of an indictment filed against him and another advertising executive by a grand jury.

In a statement, Ogilvy said Early “has decided to resign in order to devote his full energies to obtaining a full vindication in this matter.”

On Tuesday, a grand jury indicted Early and Shona Seifert, alleging that the pair worked with unidentified co-conspirators and “participated in an extensive scheme to defraud the United States government by falsely and fraudulently inflating the labor costs” that Ogilvy incurred while working under contract, according to published accounts.

Seifert, who was named president of the New York office of Omnicom Group Inc.’s TBWAChiatDay agency in February 2002, is a former Ogilvy employee. According to accounts of the court document, she served as a senior partner and an executive group director during the time relevant to the case.

In February 2002, Ogilvy paid $1.8 million to settle civil charges. At the time, said a report, Ogilvy stated that it voluntarily withdrew $850,000 in billings to the United States because it lacked confidence in the documentation supporting the figure.

Acting Boeing CFO Now Permanent

The Boeing Co. announced that James A. Bell will be the permanent chief financial officer for the $54 billion global aerospace company.

He had been Boeing’s acting CFO since late November, when Michael Sears was fired over questionable business dealings with a government official.

Bell, a 31-year company veteran, served as senior vice president of finance and corporate controller since October 2000, where he was responsible for managing the company’s financial and cost accounting, external reporting, cost policy, companywide estimating, and common business systems. Bell has also been the company’s principal liaison to the board of director’s audit committee.

Qwest for Indictments

A number of executives at Qwest Communications International Inc. may be sued by the Securities and Exchange Commission over the telephone company’s accounting practices, according to Bloomberg, citing people familiar with the matter.

The wire service reported that the regulatory agency sent at least a dozen current and former Qwest employees so-called Wells notices last month, informing them that they may face civil lawsuits stemming from swaps of fiber-optic network capacity.

Qwest, which is currently being investigated by the Securities and Exchange Commission and the Justice Department, announced in October that its net losses for 2000 and 2002 were about $2.5 billion larger than originally reported.

Last February the SEC filed civil fraud charges against eight then-current and former officers and employees of Qwest, alleging they inflated the company’s revenues by about $144 million in 2000 and 2001 to help meet earnings projections and revenue expectations.

It’s not clear how the new civil charges would differ from the ones filed nearly a year ago, or whether any of the same individuals are involved.

Former CEO Joseph Nacchio, who resigned in June 2002, is not among those receiving Wells notices, said Bloomberg.

Walt Disney Co. Approves Governance Measures

One month after Roy Disney “retired” from The Walt Disney Co. board of directors while simultaneously leveling criticisms at chairman and chief executive officer Michael Eisner, Disney’s board approved a series of corporate governance measures, including rules that would strengthen its independence.

The board also re-elected former U.S. senator George Mitchell to a second term as presiding director, modified the charter of the governance and nominating committee, adopted a code of conduct and business ethics for directors, and reconstituted the membership of key board committees.

The board also conducted its annual review of director independence and determined that under the new guidelines, all directors are independent except Eisner; Robert Iger, Disney’s president and COO; and John Bryson.

Eisner and Iger are considered inside directors because of their employment as senior executives of the company. Bryson is considered a non-independent outside director for the first time because in fiscal year 2003, the level of business between Disney and Lifetime Entertainment Television, where Bryson’s wife is an executive officer, exceeded the financial threshold established by the newly amended guidelines.

The board also announced that it plans to add another independent member during the next 6 to 12 months.

The board’s newly adopted a code of business conduct and ethics for directors is intended, in part, to implement requirements of the New York Stock Exchange’s recently revised listing standards as well as the requirements of the Sarbanes-Oxley Act of 2002.

Glaxo Faces $5.2 Billion Tax Bill

And you think you’re paying too much in taxes.

As most Americans gear up for that annual rite of spring, GlaxoSmithKline Plc, Europe’s largest drugmaker, said that U.S. authorities want it to pay up to $5.2 billion in additional taxes, plus interest, according to Reuters.

Created three years ago from the merger of Glaxo Wellcome and SmithKline Beecham, the company revealed that it’s on the hook for $2.7 billion in taxes owed by Glaxo Wellcome for the years 1989 to 1996. Glaxo estimates that the interest on that amount works out to $2.5 billion.

The company added that it expects to receive an additional assessment for the period covering 1997 to 2000.

The tax claim stems from a long-running dispute between Glaxo and the IRS over taxes owed on six top-selling drugs. In a statement, Glaxo maintained that the additional tax claim “is inconsistent with the treatment of other pharmaceutical companies, including GSK legacy company SmithKline Beecham.” The company added that it “attempted to resolve the dispute by referring it to negotiations between the U.S. and U.K. tax authorities,” but that these discussions may have collapsed because “the U.K. supported [our] position that no additional taxes were due to the IRS.”

Glaxo said it plans to contest the tax claims by filing a petition in U.S. Tax Court, where a trial is not expected until sometime in 2005 or 2006.

SEC Adds Gemstar Fraud Charges

The Securities and Exchange Commission filed securities fraud charges against three former senior executives of Gemstar-TV Guide International Inc., including the former chief financial officer of TV Guide Inc.

The complaint charges the executives with participating in Gemstar’s widespread and complex scheme to inflate its licensing and advertising revenue and to mislead investors about the company’s true financial performance.

The SEC’s action, filed in United States District Court in Los Angeles, amends the commission’s complaint filed against former chief financial officer Elsie Leung and former chief executive officer Henry C. Yuen on June 19. The complaint seeks permanent injunctions; civil money penalties; and disgorgement of ill-gotten gains including salaries, bonuses and any proceeds from the sale of stock during the fraud. The SEC also seeks to bar Leung and Yuen from serving as an officer or director of a public company.

“These new charges reveal that the betrayal of the investing public by Gemstar’s management was carried out not just by the former CEO and CFO, but with the participation and assistance of others in the executive suite,” said Randall R. Lee, regional director of the SEC’s Pacific Regional Office. “It’s even more disturbing that two of the defendants were also members of Gemstar’s board, and that one of them was the general counsel of the company.”

The new complaints were filed against Peter C. Boylan, Jonathan B. Orlick, and Craig Waggy. Boylan is a former co-president, co-chief operating officer, and member of the board of directors of Gemstar, and co-chairman, chief executive officer, and co-president of Gemstar’s wholly owned subsidiary, TV Guide Inc. Orlick is a former general counsel, executive vice president, and a member of the board of directors of Gemstar. Waggy is the former chief financial officer of TV Guide, a position he held from September 1997 to May 2002.

The SEC’s amended complaint alleges that, from June 1999 through September 2002, Gemstar overstated its total revenues by at least $248 million to meet ambitious projections for revenue growth.

The SEC’s amended complaint charges Boylan, Orlick, and Waggy with securities fraud, falsifying Gemstar’s books and records, and aiding and abetting Gemstar’s reporting and record-keeping violations of the federal securities laws. The amended complaint also charges Orlick with lying to Gemstar’s auditors.

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