Scandal Redux?
New corporate misdeeds alleged
Even as Congress celebrated the first anniversary of its landmark corporate governance law last week, new chronicles of deceit emerged from the business scandals that spurred the reforms.
WorldCom, bankrupted by the massive accounting fraud revealed a year ago, now faces a criminal investigation over allegations that it avoided payment of millions of dollars in access fees by rerouting long-distance calls to disguise them as local calls. The Justice Department and the Federal Communications Commission are looking into the allegations made by WorldCom's rivals, AT&T, Verizon, and SBC Communications. And WorldCom's biggest single client, the federal government, notified the company it is ineligible for new contracts because of ethics concerns. WorldCom says some of its telephone traffic travels through small routing companies that provide a "legitimate alternative" for reducing access fees. But the company hired a top-tier law firm to investigate.
Meanwhile, Citigroup and J. P. Morgan Chase agreed to pay $300 million to settle charges that the giant banks helped energy monolith Enron deceive investors by hiding its debt and inflating cash flow before the company's 2001 bankruptcy. The Securities and Exchange Commission and the Manhattan district attorney's office say the banks helped Enron conceal billions of dollars of loans the banks made to the company through an intricate web of off-balance-sheet transactions and complex commodity trades. The settlement does not end the banks' legal woes; Enron's shareholders, creditors, and the company itself have indicated they will pursue legal claims.
This story appears in the August 11, 2003 print edition of U.S. News & World Report.
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