The Economy

The Ashford Files

Some superheroes, some villains, and a smattering of minor characters.
John GoffJune 14, 2002

It was a peculiar five days. The Andersen jury couldn’t come to a decision, and France couldn’t score a goal. Who made out okay this week? Who didn’t do so hot? Read on.


1. Sellers of D&O Insurance

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On Wednesday, officials at the Securities and Exchange Commission proposed rules that would hold a company’s CEO and CFO responsible for certifying the contents of their company’s quarterly and annual reports.

False certification could expose executives to both civil and criminal legal action, SEC Commissioner Harvey Pitt reportedly said in a PBS interview.

“The CEO of a company should not be able to say ‘Gee, I didn’t realize’ or ‘I wasn’t aware’ or ‘I’m flying at 50,000 feet and therefore wasn’t paying attention to specific disclosures.”‘

The proposed CEO/CFO certification rules are consistent with a key provision of President Bush’s 10-point “Plan to Improve Corporate Responsibility and Protect America’s Shareholders,” announced March 7.

That plan states that CEOs should personally vouch for the veracity, timeliness, and fairness of their companies’ public disclosures, including financial statements. Under the SEC’s version, the CEO and CFO must certify that they have read the company’s quarterly and annual reports, the information is true, and the reports contain all information deemed “important to a reasonable investor.”

The big winner of the new rules? investors. A close second: sellers of directors’ and officers’ insurance, who stand to coin it off paranoid CFOs — worried they’re going to get sued for every typo in a 10-K.

(Take a more in-depth look at the SEC’s new proposals.)

2. Kenneth West, Marvel Enterprises

West was named new CFO at Marvel Enterprises this week. In addition to overseeing finance and treasury, West will also be talking to Wall Street more than his predecessors.

It’s a good time to be talking to investors right now — if you’re CFO at Marvel Enterprises. After going belly-up in 1996, the company is now on a serious roll. Currently, Marvel holds a 36 percent market share of comic book sales, way ahead of rival DC Comics (owned by AOL-Time Warner). The Big Red S company holds a 23 percent market share.

Ironically, Marvel has basically been rescued by its own superheroes. The company, started by the redoubtable — and altogether wonderful — Stan Lee, swung to profitability in the first quarter this year on a big rise in comic-book sales, thanks mostly to the X-Men and Spider-Man. Spider-Man (the movie) has done pretty okay, as you know. The Hulk is coming to theaters next year, although we’re still waiting for the Not Brand Ech movie.


1. Brian Bergeron, ex-CFO,

>> Bergeron, along with former CEO Kenneth Kurtzman, settled SEC fraud accusations in Federal District Court in Washington. Bergeron, one-time finance chief at the online jewelry company, agreed to pay $25,000 for misleading auditors on pro forma earnings.

The charges against Bergeron stemmed from a deal made with In that alleged deal, Amazon agreed to pay $600,000 to Ashford. In return, Amazon supposedly got got noncash credits related to a promotional deal by the two companies. But after the deal was settled, Ashford’s management apparently realized it wouldn’t meet targets for the fiscal year about to end on March 31, 2000.

According to the SEC, Ashford’s top managers persuaded Amazon to split payment into two letters: one that made it seem Ashford made out nicely in getting the cash, and the other showing the actual costs of the marketing campaign. Guess which one Ashford showed to its auditors?

For its part, Amazon pretty much got off with slap on the wrist, accepting a cease-and-desist order from the SEC. The Commission was not able to convince the online giant to agree to a don’t-do-sneaky-things order, or a don’t-wear-white-after Labor Day order.

(Read more about’s troubles with the SEC.)

2. Cendant Corp.

Hey, we’ve seen this movie.

First, some background: Back in December 1997, the franchiser of Avis, Ramada and Century 21 — then called HFS Inc. — merged with CUC (which sold memberships in discount buying clubs). The new company was called Cendant Corp. Four months later, management at the new company admitted that CUC overstated income, resulting in one of the biggest financial fraud cases ever brought by the SEC.

Late last week, Christopher Christie, the U.S. Attorney for New Jersey, told wire services that his office is “taking a fresh look at the entire Cendant case.”

Not exactly great news for Cendant. According to a published report, government lawyers spoke with representatives of Ernst & Young, the accounting firm that audited CUC for more than a decade. Ken Kerrigan, a spokesman for E&Y, told the press that executives at the audit firm are “aware that there is an investigation” but that the firm was not a target of the probe. Cendant officials issued a succinct statement noting that company officers and directors “are not in any way involved in [the] investigation.”

Cendant and its accounting firm have already agreed to a $3.2 billion settlement with stockholders on the previous charges. Former CUC executives Walter Forbes and E. Kirk Shelton were found to have inflated the company’s value. Each faces charges of conspiracy, securities fraud, wire fraud, and mail fraud. None of those things are good.

3. Economists Who Predicted an Early Recovery

Lots of economists predicted the sagging U.S. economy would start perking up come January 1. Some others, claiming they could see the bottom — and that’s probably true in some cases — said the economy would most definitely turn around starting April 1. Still others predicted that a full-scale recovery would begin this summer.

You get the idea. So far, the economy has yet to really take off. And this week, CEOs at small and midsized companies conceded they are less optimistic that the economy will begin to get healthy by the end of 2002. The chief executives were part of a quarterly survey by TEC International, an organization of CEOs of U.S. businesses with annual sales between $1 million and $1 billion.

In the survey, the percentage of CEOs predicting an end-of-year recovery slipped to 77 percent of the respondents. By comparison, in the previous TEC survey, 86 percent of the corporate executives predicted the economy would recover by year-end.

On the other hand, 22 percent of the polled CEOs did say they expect a recovery in the first half of 2003. Another 10 percent said they expected a recovery some time within the next year. Additionally, three percent said they couldn’t quite understand why Esperanto never caught on.