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Too much competition for dirtiest dozen

By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times, published July 14, 2002

Drip. Drip. Drip.

Drip. Drip. Drip.

Day-after-day-after-day disclosures of companies falling under investigation for accounting fraud, market manipulation or executive excesses bear a striking resemblance to water torture.

Isn't this against the Investors Geneva Convention or something?

After too many droplets to the forehead, I'm rattled over which public companies to trust -- about anything. Last week's major stock markets fell to lows not seen since 1997, proving most investors obviously feel the same way.

Small wonder the Dow Jones industrials finished the week with the fourth triple-digit drop in five sessions.

That's why I've made a lengthy list of those companies whose alleged shenanigans are draining investors of what little confidence they still have in the markets. But this list already is getting too long, too fast. So here's my solution.

The Dirty Dozen. These are the 12 companies that, as of today, are most responsible for the national (or should I say international) epidemic of investor mistrust.

Some of the companies chosen for the Dirty Dozen are obvious. Houston's Enron was so rotten that including it is a no-brainer. WorldCom's $3.8-billion worth of sham accounting makes the telecommunications giant another easy pick.

But other companies, such as conglomerate Tyco International with its art-loving-but-tax-hating ex-CEO, made the list for their creative deceptions. Still others were chosen for their impact on the broader American psyche. Investors did not recoil en masse at the ImClone Systems scandal until they learned homestyle diva Martha Stewart was embroiled in a possible insider trading scandal. Halliburton, a ho-hum oil services company, jumped on the list after its former CEO -- Vice President Dick Cheney -- was named last week in a shareholder lawsuit alleging accounting fraud.

Membership on the Dirty Dozen can change at any time. If new companies emerge to hurt investor confidence -- lately, that's happening every day -- then my list will need to be revised.

Of one thing I am confident. Competition to make the Dirty Dozen will remain fierce for much of this year, if not longer.

For those in need of a refresher, here's a quick sketch of who made the Dirty Dozen and why:

1. Enron, Houston: The mother of all modern corporate chicanery. Top executives sold shares before fraud disclosed. Thousands of employees lost bulk of retirement savings. Arthur Andersen auditors shredded evidence. Ex-CEO Ken Lay among top bankrollers of political career of President George W. Bush.

2. Global Crossing, Bermuda and Beverly Hills, Calif.: Bankrupt fiber-optic telecommunications giant. Boosted "revenues" with funny accounting. Never reported a profit. Big political contributor. Terry McAuliffe, now the chairman of the Democratic National Committee, turned a $100,000 stake into just under $18-million when he sold most of his shares in 1999. Former President Bush, George W.'s father, was paid $80,000 in company stock for one speech and sold it later for millions.

3. WorldCom, Clinton, Miss.: Former CEO Bernie Ebbers said to be aware that hundreds of millions of dollars were shifted as part of $3.8-billion in accounting irregularities. Is corporate bankruptcy next?

4. Xerox, Stamford, Conn.: SEC says it engaged in "four-year scheme to defraud investors." But no official has been charged with an offense.

5. Tyco, Bermuda and Exeter, N.H.: Ex-CEO Dennis Kozlowski indicted on charges of evading sales tax on Monet, Renoir artwork, plus evidence tampering. Company finances under investigation.

6. Qwest Communications, Denver: Feds just launched criminal investigation into No. 4 U.S. local phone company. Already facing SEC inquiry into accounting practices.

7. Adelphia Communications, Coudersport, Pa.: Investigators looking at now-bankrupt cable company's $3-billion in questionable loans and transactions involving founder John Rigas and his family.

8. Merck & Co., Whitehouse Station, N.J.: Drug giant's pharmacy-benefits business recorded $12.4-billion in revenue that it never collected from $5 to $20 co-payments. Lawsuits mounting.

9. Halliburton, Dallas: Now under SEC investigation (accounting), company never would have hit national radar screen, except it was run by Dick Cheney before he became vice president. Last week, a watchdog group sued Cheney and Halliburton, alleging revenues overstated by $445-million from 1999 through the end of 2001. SEC still has not contacted Cheney.

10. ImClone Systems, New York: Former CEO Sam Waksal arrested in June, accused of selling company stock and tipping off family members before Food and Drug Administration rejected new cancer drug called Erbitux. Why care? Waksal pal Martha Stewart also sold her shares just before FDA move. As Stewart denies wrongdoing and battles insider trading investigation, her own business empire shows signs of trouble.

11. Stanley Works, New Britain, Conn.: No funny numbers here. But toolmaker hurt investor trust and markets after proposing to set up shell headquarters in Bermuda in order to avoid paying U.S. taxes. (Notice that Dirty Dozen members Global Crossing and Tyco already are headquartered in Bermuda.) In backlash, new legislation would discourage further relocations to avoid U.S. taxes.

12. Bristol-Myers, New York: Company under federal investigation for allegedly inflating earnings by urging wholesalers to overstock more than $1-billion worth of its drugs.

Drip. Drip. Drip. How can investor confidence not be hurting?

And that's just the Dirty Dozen. They were plucked from a fast-expanding pool of companies facing various inquiries.

Like cash-squeezed media conglomerate Vivendi Universal (whose U.S. entertainment assets include USA Network, Universal Pictures and controlling interest in theme parks such as Universal Orlando) for its accounting practices.

Like drugstore chain Rite Aid Corp., whose former chairman and top executives pleaded innocent Thursday to federal criminal charges. They allegedly participated in an accounting fraud aimed at boosting the company's stock price.

Like energy companies Reliant Resources, Dynegy and CMS Energy that engaged in sham transactions to try to boost revenues and make their power-trading activities look busier than they were.

On Friday, North Carolina's Duke Energy was dragged by federal subpoena into the same power-trading inquiry.

Who's next? The drumbeat is getting so loud that, on Friday, consumer products giant Procter & Gamble dismissed stock market rumors about possible accounting irregularities. The company said it has not been contacted by U.S. authorities.

The P&G rumor won't be the last by any measure. President Bush's "corporate responsibility" push last week of mostly voluntary proposals and new congressional moves to toughen measures aimed at curbing company abuses will only encourage investor concerns that more scandal lies ahead.

The more government looks for wrongdoing, the more likely it will find some. For awhile, each new corporate problem will sour investors further on corporate America and Wall Street.

At some point, that will change. Let's call it "catching up" by the former sleeping watchdogs.

Until then, investors, keep your own Dirty Dozen list. It may come in handy in such hectic times.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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