Receive the Bulldog Edition


Economic Blogosphere

Economic Journalists


economicprincipals.com banner

April 4, 2004
David Warsh, Proprietor


| contents |

Guilty Pleasures: The News From Home

BERLIN — The day last week that that a mistrial was declared in the epic trial of former Tyco International executives Dennis Kozlowksi and Mark Swartz, I happened to be reading the German papers. Not the news from Duesseldorf, where German judge had thrown out the criminal charges against the six Mannesmann directors who pocketed €60 million four years ago after they sold their cellular phone business to the United Kingdom’s Vodaphone for €178 billion. The fees for negotiating that deal were more than the directors deserved, the judge said. But they were not high enough to be criminal. Former Mannesmann executive Klaus Esser heaved a sigh of relief. He then lamented that the day seemed more distant than ever when Germany would adopt Anglo-American standards of executive compensation.

What caught my eye instead was a dispatch from Mannheim. A spot check of 26 shops and 14 farmers’ markets in the surrounding area determined that, in violation of federal law, the best-before date was missing or calculated the wrong way on two percent of eggs sampled. Another eight percent of eggs did not have a stamp showing the number of the farm that brought them to market.

The individually-stamped eggs in local markets — you choose each one yourself — are among my favorite reminders of what makes this country different from the United States. As far as I can tell, Germans stamp the pretty little numbers on their eggs because they can.

They have learned how to make small egg-stamping machines that are as delicate as their big counterparts are precise when stamping out fenders for Volkswagen and Mercedes Benz. And so they stamp their eggs. Pedestrians wait patiently for the traffic light to change before crossing the street. Agricultural subsidies are designed to protect the landscape. And everyone who moves to town registers with the police.

The best story of the year so far has had to do with a cannibal who pleaded not guilty because the man whom he killed and partly ate had been a willing victim. (They met on the Internet.) He was sentenced to eight-and-a-half years.

In contrast, almost every week brings news from the United States of the trial one or another corporate executive caught up in the excesses of the 1990s whose case has finally reached the courts. Who needs cannibals when you’ve got stories like these?

  • Tyco International is the little conglomerate that Dennis Kozlowki is charged with looting with the aid of former chief financial officer Mark Swartz — $170 million from the company itself, another $430 million from shareholders in various stock sales. The details of the trial have been endlessly amusing, especially the $2 million week-long Sardinian birthday bash for Kozlowski’s wife, half of it paid for with company funds. The jury was said to have been within hours, perhaps minutes of a verdict last week when the judge called them off. The government promised another, shorter trial.

  • Imclone founder Dr. Samuel Waksal has been sentenced to 87 months in prison for warning family and friends that the company’s application for a promising cancer drug was about to be rejected, allowing them to sell their shares ahead of the news. Among the beneficiaries of Waksal’s advice was design consultant Martha Stewart, herself convicted of obstructing justice in connection with the investigation of the case and now facing five years in prison.

  • CSFB technology guru Frank Quattrone was tried last fall on charges of instructing subordinates to destroy e-mails as the government investigated the allocation of shares of initial public offerings to hedge fund operators who paid inflated fees. The trial resulted in a hung jury. The government is preparing to try the case again.

  • Richard Scrushy, former chief of executive of HealthSouth Corp., has been charged with routinely inflating earnings in order to keep share prices high — some $2.5 billion worth altogether. Scrushy says he was unaware of the fraud, to which fifteen former executives have already pleaded guilty. His trial is scheduled to begin in August.

  • Federal prosecutors charge that Adelphia Communications was run as a personal fief by founder John Rigas and his family. They assert that he and other executives looted the cable television company through sweetheart deals and by inflating its earnings. A criminal trial is underway.
  • The Rite Aid drug store chain’s management team is said to have overstated earnings by $1.6 billion, then tried to destroy the evidence when the Feds arrived. The company general counsel, Franklin Brown, already has been convicted on witness-tampering charges and sentenced to ten years in prison. Chairman Marvin Grass has copped a plea to fraud and agreed to serve as many as eight years in prison.

  • No trial date is set for the trial of WorldCom’s Bernard Ebbers and several other executives in what the Securities and Exchange Commission charges was an especially bold $11 billion fraud. Ebbers pleaded not guilty. He was just trying to build a big telephone company fast, he says.
  • And of course there is the grand-daddy of them all, Enron. Chief Financial Officer Andrew Fastow already has pleaded guilty to fraud and received an up-to 10 year sentence, He’ll take the kids while his wife serves her five months for tax fraud. Former chief executive Jeffrey Skilling has been indicted on charges of conspiracy and fraud and has pleased not guilty. Arthur Andersen, Enron’s accounting firm, has gone out of business. But the really interesting question is whether Federal investigators will succeed in bringing charges against Enron founder and chairman Kenneth Lay. They clearly are trying hard.

  • And the stories of Parmalat, Royal Dutch Shell and Hollinger are for the most part yet to come!

You can get addicted to this kind of thing. Here is something to look forward to in the coming week: What explanations will the New York Post and The Wall Street Journal give for having published the Tyco trial juror’s name?

True, “the batty blueblood,” as the Post described her, had seemed, at least to many observers, to giving the defense team a high sign — the thumb and index finger put together in a gesture signifying “okay” — as she filed out of the courtroom one day late last month.

Was that sufficient reason for editors abandoning the commonly accepted practice of shielding the identity of sitting jurors? As quickly as the 79-year-old retired school teacher was identified as “the holdout granny” in the jury’s deliberations, she apparently began receiving abusive emails, prank telephone calls and, finally, a letter threatening enough for the judge to declare a mistrial. (The judge, too, will have to explain why he didn’t sequester the jurors once word got out, or at least withhold their mail.)

What is the point of this laundry list? It is that everybody learns something from a crime wave. Journalists, jurists and historians will be trying to run a thread through these spectacular failures for years to come. If one thing is suggestive about this particular list, it is that no industry seems to have contributed more than one big-league rascal. The dot.com and bio-tech bubbles were something else — classic examples of investment mania. If the one-to-an industry rule holds up, there is something comforting about it. Just as every village has an idiot, every village had a crook. And for those of us interested in vicarious crime-busting, it sure beats auditing eggs.

| contents |


Skim past columns here.


Support Economic Principals by subscribing to its bulldog edition—receive the weekly via email a day before it is posted on the Web, and, as well, a quarterly Report to Subscribers.

To reach the proprietor, ask a question about the website or report a problem email warsh@economicprincipals.com.

Camisetas de fútbol baratas camisetas fútbol camisetas futbol Réplicas camisetas de fútbol Camisetas futbol tailandia Camisetas nba baratas nike air max pas cher nike tn nike air jordan nike free zapatos deportivos baratos