The Economy

George of the Jungle

President Bush signs landmark bill to deter corporate corruption; "far-reaching reforms reach far," says chief executive.
John GoffAugust 2, 2002

Disclaimer: While the entries in GW/BW are based on actual news items, some of the people, persons, and events in this article are fictional. Other stuff I just made up.

Please, no lawsuits.

GOOD WEEK

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1. President Bush

In a ceremony in the White House on Tuesday, President Bush signed sweeping legislation aimed at deterring corporate fraud. While signing the bill, the President harkened back to the days of the Great Depression, calling the provisions of the legislation “the most far-reaching reforms of American business practices since the time of Franklin Eleanor Roosevelt.”

Added Bush: “No more easy money for corporate criminals, just hard time. Real hard time. The kind of time where you look at a calendar each day and wonder what day it is.”

The President went on to promise that the arrests last week of five Adelphia executives was merely the opening salvo in the administration’s plan to crack down on accounting abuses. Warning that the government will use all the tools at its disposal, the President noted that the recently created corporate fraud task is just getting started.

“Free markets are not a jungle in which only the unscrupulous survive,” the President explained. “They’re a jungle in which the scrupulous animals should also survive — survive, and build big straw things, or whatever it is they live in. But let there be no mistake: those who break the laws of the jungle — the jackals and hyenas and cheaters — they must pay a price. Hopefully, a good one.”

2. IBM

On Tuesday, management at International Business Machines announced it had agreed to buy PwC Consulting, PricewaterhouseCoopers’ global business consulting and technology services unit. The price of the acquisition? $3.5 billion in cash and stock

The transaction is expected to be completed around the end of the third quarter, or possibly by late September.

It appears IBM got a good deal in picking up the consulting unit. In 2000, Hewlett-Packard reportedly agreed to pay a whopping $18 billion to buy PwC Consulting. Obviously, that deal fell through.

The IBM deal means PwC will scrap its earlier plans to spin off its consulting unit in an IPO. PwC had planned to call that new company “Monday.” a choice that had many branding experts puzzled.

GW/BW has learned exclusively, however, that PwC’s short-list of names for the potential spinoff included Monday, plus six other possibles.

BAD WEEK

1. Andrew Fastow

According to Reuters, the former Enron CFO is now planning to sell his palatial dream house in River Oaks, Texas, when construction on it is completed in September. Rather than move into the 11,000 square-foot mansion, located in Houston’s most exclusive neighborhood, Fastow will remain in his current home.

Financing for the multi-million dollar house was reportedly arranged by Citigroup and J.P Morgan Chase. The interest rate? The banks said they actually paid the interest on the loan. When pressed on this, an official at one of the banks told GW/BW: “What? You’ve never heard of structure financing? It’s actually a very common practice.”

2. Warnaco Management

On the same day that ex-WorldCom finance managers were hauled into court, Warnaco Group Inc., said the SEC may soon bring charges against the bankrupt clothing maker.

The company’s management added that SEC lawyers informed the company on July 18 that they intend to recommend that the SEC authorize an enforcement action against Warnaco and certain individuals, alleging violations of the federal securities laws.

In what can only be described as a peculiar legal strategy, Warnaco management stated it has not been cooperating with the SEC investigation. Instead, management at the apparel company said it has been hiding stuff and shredding every bit of paper on the premises.

3. Anthony Chrysikos

A former General Electric Capital Corp. finance executive, Chrysikos was charged this week with illegal insider trading stemming from the company’s acquisition last year of Heller Financial Inc.

Chrysikos, 39, a former vice president of finance in the aircraft services division of GE Capital Corp., surrendered on Friday and was released on a $350,000 personal recognizance bond.

The other defendant in the case is Michael Martello, who was living in Taiwan at the time of the alleged scheme.

Chrysikos, who reportedly participated in the Heller deal, allegedly tipped off Martello, who in turn is said to have purchased Heller call options before the deal was publicly announced. Martello allegedly sold the options for a $157,259 profit.

Back in March, the SEC filed a civil complaint against Chrysikos and Martello, alleging they engaged in an illegal insider trading scheme stemming from the GE Capital merger with Heller.

In that complaint, the SEC also named Martello’s mother, Marie Martello, as a relief defendant. The Commission alleged that Chrysikos conveyed material nonpublic information to Michael Martello, a Kung-Fu instructor and Web page designer. Allegedly, Chryskiso passed the inside information along to Martello’s mother, who is said to have passed the information on to her son in a surreptitious fashion.

For instance, agents allege that Martello’s mother baked him a birthday cake with the inscription: “Roses are Red, Violets are Blue, Set Up a Stop Loss at 32”

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