SEC and Other Investigations of Illegal Trading

http://news.yahoo.com/s/ap/20050713/ap_o...

Top 141. Jul 13, 2005 3:50 PM

» SteveT - WorldCom's Ebbers Gets 25 Years, Weeps

WorldCom's Ebbers Gets 25 Years, Weeps

By ERIN McCLAM, Associated Press Writer

Weeping in court as he learned his fate, former WorldCom boss Bernard Ebbers was sentenced to 25 years in prison Wednesday for leading the largest corporate fraud in U.S. history.

It was the toughest sentence imposed on an executive since the fall of Enron in 2001 touched off a record-breaking wave of business scandals.

Even with possible time off for good behavior, Ebbers, 63 and with what his lawyers describe as serious heart problems, would remain locked up until 2027, when he would be 85.

The sentence came four months after Ebbers was convicted of overseeing the $11 billion WorldCom fraud — much of it a pattern of chalking up expenses as long-term capital expenditures, which are classified as assets.

Ebbers, an imposingly tall man with buzzed white hair, leaned forward in his chair and cried, sniffling audibly, after Judge Barbara Jones of U.S. District Court in Manhattan read his penalty.

"I find that a sentence of anything less would not reflect the seriousness of this crime," the judge said.

As a packed courtroom emptied after the hearing, Ebbers' wife, Kristie, who had cried quietly during the hearing, walked up to the defense table and embraced her husband tightly. Ebbers did not speak to reporters.

It was just more than three years ago that the fraud at WorldCom began to come to light, reducing shares of stock once worth more than $60 to mere pennies. Billions of dollars in market value vanished.

Mississippi-based WorldCom filed for bankruptcy — also the largest in U.S. history — in the summer of 2002. It has since re-emerged under the name MCI Inc., with headquarters in Ashburn, Va.

Gino Cavallo, an MCI service consultant who also worked for years at WorldCom, lost tens of thousands of dollars in retirement money in the fraud. He attended the sentencing and said he was pleased.

"The man's 63," Cavallo told reporters. "He's going to die in jail. How much sterner could you get?"

The sentence completed a staggering fall for Ebbers, whose homespun Mississippi manner and hard-charging business style earned him status as an admired chief executive — and the nickname Telecom Cowboy.

The former basketball coach helped start a small long distance reselling business in the early 1980s, then gradually built it into a business titan by swallowing ever-larger companies, eventually even MCI.

Jones ordered Ebbers to report to prison Oct. 12, and said she would recommend that federal prisons officials assign him to Yazoo City, Miss., so his family could see him easily.

But the judge said she would take written arguments over the next six weeks on whether she should allow Ebbers to remain out of prison while he appeals his conviction, a process likely to take at least a year.

She imposed the 25-year sentence after a two-hour hearing in which defense lawyers and federal prosecutors debated exactly how much money was lost because of the fraud, a key factor in determining the penalty.

The defense had argued it was impossible to find whether investors had sold WorldCom stock in 2002 directly because of the fraud, company personnel changes or the generally poor economy. The judge was unmoved.

"This was not a minor fraud," she said. "Mr. Ebbers committed a fraud that caused numbers of investors to suffer losses. His statements deprived investors of the truth about WorldCom's financial condition."

Defense lawyer Reid Weingarten had asked for leniency, mentioning Ebbers' heart condition and his considerable, often anonymous, charitable works, cited repeatedly in 169 letters sent to the judge.

"If you live 60-some-odd years, if you have an unblemished record, if you have endless numbers of people who attest to your goodness, doesn't that count? Doesn't that count particularly on this day?" Weingarten said.

The judge could have imposed an even stricter sentence had she found that Ebbers committed perjury when he testified in his own defense.

On the stand, Ebbers told jurors he never knew of the fraud. Asked about documents he reviewed that showed highly suspicious financial figures that tipped off the fraud, Ebbers said, "I just didn't see it."

Jones said it was not clear Ebbers had committed perjury, and said jurors could have believed his testimony and still convicted if they believed he intentionally looked the other way as the fraud took place.

The judge also heard briefly from Henry J. Bruen Jr., a former high-ranking sales executive at WorldCom who lost his job in 2003 and said he has been unable to find work since, putting him through "sheer hell."

"Where do I get my life savings back from?" he demanded. "Or my career reinvigorated?"

Jones did not impose a fine or seek restitution, partly because of an agreement late last month under which Ebbers will forfeit nearly all his personal assets to settle a civil suit filed by aggrieved investors.

Under that settlement, Ebbers' wife will be left about $50,000 of Ebbers' assets and a modest home in Jackson, Miss. A far more lavish family home in Brookhaven, Miss., will be sold off as part of the settlement.

"Simply put, justice was served," said New York state Comptroller Alan Hevesi, the lead plaintiff in the civil suit against WorldCom, which has racked up $6 billion in settlements.

The 25-year term is the harshest yet as corporate executives have been paraded through American courtrooms in a series of eye-popping business scandals that have cost investors untold billions.

A former finance executive of Dynegy Inc., Jamie Olis, is serving 24 years in prison for his role in a fraudulent accounting scheme at the Enron-linked energy company.

And last month, Adelphia Communications Corp. founder John Rigas was sentenced to 15 years in prison for his role in the looting and fraud at that company. His son, former finance chief Timothy Rigas, got 20 years.

Two top executives at Tyco International Ltd. convicted of stealing from company coffers are awaiting sentencing in August, and three top Enron executives go on trial in Houston early next year.

Ebbers is the highest-ranking of six WorldCom executives and accountants who were charged by federal prosecutors in the fraud. The other five face sentencing in late July and early August.

Among them will be Scott Sullivan, the former chief financial officer under Ebbers, who testified at Ebbers trial that he carried out the fraud but said he did so on Ebbers' orders.

-- posted by SteveT

Top 142. Jul 13, 2005 11:14 PM

» Kirk - Re: WorldCom's Ebbers Gets 25 Years, Weeps

.
In response to WorldCom's Ebbers Gets 25 Years, Weeps posted by SteveT:

The amount of money I lost on WorldconJob due to Ebbers lying about their business would be considered a felony if it was stolen from my house. Fortunately, it was a small percentage of my total, but it is not pocket change. Think of all the people who lost $10,000 or more to this crook. He deserves the penalty for a felony for each and every one of us that lost money on his company where he lied about their business.

Cry.. hell, the bastard should get down on his knees and beg forgiveness from the millions he hurt. Many companies like AT&T nearly went under trying to compete with his company and they are worth but a fraction of their 2000 value.
<img src=http://chart.finance.yahoo.com/c/my/t/t>

-- posted by Kirk

Top 143. Jul 14, 2005 6:24 AM

» lcha - Re: Re: WorldCom's Ebbers Gets 25 Years, Weeps

In response to Re: WorldCom's Ebbers Gets 25 Years, Weeps posted by Kirk:

I hope associate felon Ken Lay needed to down another bottle of Pepto after seeing Ebber's sentence.

And felon Lay can donate all he wants to Houston churches. That may have worked for Healthsouth's Scrushy in Birmingham but wheeler-dealer Houston is NOT Burmingham.

BTW, the engraving 'Ken Lay' on the Ken Lay YMCA stone sign, near my house, is now about 1/8 the size of YMCA. It started off being about 2 times the size of YMCA. Then it was redone, after the magnitude of the scandal was clear and YMCA was getting complaints, to smaller than YMCA and it was redone yet again to a fraction of YMCA. I suspect that until he is convicted, YMCA is contractually bound to display his name in SOME form.

-- posted by lcha

Top 144. Jul 14, 2005 7:09 AM

» Kirk - Re: WorldCom's Ebbers Gets 25 Years, Weeps

.
In response to Re: Re: WorldCom's Ebbers Gets 25 Years, Weeps posted by lcha:

This giving to charities is sure a scam when done by many. I've noticed some of the largest scams in other areas usually involve the perpetrator giving a large fraction of what they collect to charity. Part of the business model of a scam is to convince society that you are a “one of the good guys.” I believe insurance and loaded mutual fund/annuity salesmen meet most of their “clients” by doing charitable community service and/or church related work such as singing in the choir to passing the collection basket so everyone sees them

I own Microsoft but it was suggested that one reason the Government went after them for being an illegal monopoly is Microsoft didn’t give enough to charity to build a better corporate image. Since then, Bill Gates started the “Bill and Melinda Gates Foundation” and has made charitable giving a larger part of the corporate culture.

Study any pro sports franchise and it will blow you away how much they give back to the community so they can get all the noisy community groups to support them or at least not try to block their exploitation of city assets for private gain.

Anyway, I sure hope Ken Lay gets the same treatment Bernie Ebbers got. Of course, I’m not sure there are stories of Lay sneaking into his company late at night to refill water cooler bottles with tap water to save money. The defense that Ebbers didn’t know what was happening was one of the most unbelievable I’ve seen given the evidence.

-- posted by Kirk

http://news.yahoo.com/s/ap/20050924/ap_o...

Top 145. Sep 24, 2005 8:02 AM

» SteveT - Prosecutors, SEC Probe Frist Stock Sale

Maybe after he gets out of prison he can get an "Apprentice" show like Martha? smile

Prosecutors, SEC Probe Frist Stock Sale

By JONATHAN M. KATZ and LARRY MARGASAK, Associated Press WritersFri Sep 23,10:23 PM ET

Federal prosecutors and the Securities and Exchange Commission have opened investigations into Senate Majority Leader Bill Frist's sale of stock in a hospital operating company founded by his family. Documents show Frist was updated several times about his investments in HCA Inc. and other transactions even though they were held in blind trusts.

Despite the updates, Frist insisted in public statements afterward that he didn't know what was in the trusts, specifically denying knowledge of his HCA holdings.

Nashville, Tenn.-based HCA said Friday it had received a subpoena from prosecutors for the Southern District of New York, asking for documents the company believes are related to Frist's stock sale.

Prosecutors also have contacted the senator's office, Frist spokesman Bob Stevenson said. He said neither the senator nor his office had received a subpoena.

Frist's office confirmed the SEC was looking into the sale.

The Tennessee Republican, a potential presidential candidate in 2008, sold the stock at a time when insiders in the company also were selling off shares worth $112 million from January through June of this year. Aides say he sold his stock to avoid any appearance of a conflict of interest.

"Senator Frist had no information about the company or its performance that was not available to the public when he directed the trustees to sell the HCA stock," Stevenson said in a statement.

Frist, asked in a television interview in January 2003 whether he should sell his HCA stock, responded, "Well, I think really for our viewers it should be understood that I put this into a blind trust. So as far as I know, I own no HCA stock"

Frist, referring to his trust and those of his family, also said in the interview, "I have no control. It is illegal right now for me to know what the composition of those trusts are. So I have no idea."

Documents filed with the Senate showed that just two weeks before those comments, the trustee of the senator's trust, M. Kirk Scobey Jr., wrote to Frist that HCA stock was contributed to the trust. It was valued at $15,000 and $50,000.

The documents filed by the trustees of Frist's blind trusts were obtained by The Associated Press on Friday.

On Nov. 20, 2002, Scobey wrote Frist that 14,781 shares of HCA were sold, along with three other investments. The same day, Scobey wrote that four other investments were sold, none of them HCA stock.

On May 16, 2002, Scobey advised Frist that four investments were contributed to a Frist blind trust, including HCA stock valued at $500,000 to $1 million. A second letter the same day mentions the same four investments going into a different trust, but with different valuations, including HCA stock valued at $250,000 to $500,000.

On Jan. 14, 2002, a trustee for Frist's children notified the secretary of the Senate that two investments were added to the blind trusts of Frist's sons Jonathan and Bryan — including HCA stock valued at $5,000 to $10,000.

Stevenson, the Frist spokesman, said he could not comment on the updates received by the senator. He added that Frist properly notified the Senate Ethics Committee this summer that he was initiating the sale of all remaining HCA shares, a requirement under Senate rules. All the stock was sold by July 1, including shares owned by his wife and children.

"As with the SEC, the majority leader will provide the U.S. attorney's office with any information that it needs with respect to this matter," Stevenson said.

The SEC also contacted HCA on Friday to informally request copies of the subpoenaed documents, said company spokesman Jeff Prescott. "We of course will comply with that request," he said.

Herb Haddad, a spokesman for the U.S. attorney's office in Manhattan, said the office had no comment on the matter. SEC spokesman John Nester declined to comment Friday on whether the agency had contacted Frist's office.

David Becker, who was general counsel at the SEC from 2000 to 2002, noted that both Frist and HCA were being put under scrutiny.

In insider trading cases, "you connect the dots not by simply going from one dot to another but by starting at both dots and working toward the middle," Becker said. "The facts that are public don't come close to demonstrating wrongdoing. It's way too premature to have any judgment."

HCA, the nation's largest for-profit hospital company, was founded by Frist's father, the late Thomas Frist Sr. His brother, Thomas Jr., was formerly its CEO and chairman and remains on the board of directors.

Frist, a heart surgeon by training, asked a trustee to sell all his HCA stock in June, near a 52-week price peak of $58.40 a share. Reports to the SEC showed HCA insiders sold about 2.3 million shares.

Frist's sale came about two weeks before the company issued a disappointing earnings forecast that drove its stock price down almost 16 percent by mid-July and still have not recovered. HCA rose $1.70 Friday, closing at $47.60.

The value of Frist's stock at the time of the sale was not disclosed. Earlier this year, he reported blind trusts with all holdings valued at $7 million to $35 million.

-- posted by SteveT

Top 146. Oct 13, 2005 4:40 PM

» Kirk - Samsung to Pay $300M Fine for Price Fixing

.
Samsung to Pay $300M Fine for Price Fixing
Thursday October 13, 1:12 pm ET
By Ted Bridis, AP Technology Writer
Samsung to Pay $300 Million Fine for Price Fixing, Federal Officials Announce

WASHINGTON (AP) -- Samsung, the world's largest maker of memory chips for computers and other electronic gadgets, has agreed to plea guilty to price fixing and pay a $300 million fine, U.S. officials said Thursday.

The penalty is the second-largest criminal antitrust fine ever and caps a three-year investigation into the largest makers of dynamic random access memory computer chips, a $7.7 billion market in the United States.

The guilty plea to the single felony charge by South Korea-based Samsung Electronics Co. Ltd. and its U.S. subsidiary, Samsung Semiconductor Inc., was to be entered Thursday in U.S. District Court in San Francisco.

The government's acting antitrust chief, Thomas O. Barnett, said seven Samsung employees were not protected by the guilty plea, an indication they may individually face criminal antitrust charges.

"That's a decision for us to make moving forward," Barnett said. He added that prosecuting individuals -- not just companies -- in price-fixing cases is an important deterrent against similar abuses.

The Justice Department already has secured similar guilty pleas from two other companies and collected more than $345 million in fines.

"Price-fixing threatens our free market system, stifles innovation and robs American consumers of the benefit of competitive prices," Attorney General Alberto Gonzales said.

A Samsung spokesman declined to comment immediately.

Samsung received grand jury subpoenas in connection with the investigation during 2002, and put aside $100 million late last year to pay potential criminal penalties.

Samsung's top competitor, Seoul-based Hynix, agreed earlier this year to plead guilty to price fixing and pay a $185 million fine. Last September, rival Infineon Technologies AG of Germany agreed to a $160 million fine. Another competitor, Micron Technology Inc. of Boise, Idaho, has been cooperating with prosecutors and was not expected to face charges.

The government accused the companies of conspiring in e-mails, telephone calls and face-to-face meetings to fix prices of memory chips between April 1999 and June 2002. The chips are used in digital recorders, personal computers, printers, video recorders, mobile phones and many other electronics.

The government said the victims of the alleged price-fixing were Dell Inc., Compaq Computer Corp., Hewlett-Packard Co., Apple Computer Inc., International Business Machines Corp. and Gateway Inc. Barrett said Apple and Dell raised computer prices to compensate, and other companies responded by reducing the amount of memory installed in computers they sold but kept consumer prices the same.

The investigation started in 2002, a year after memory chip prices began to climb even though the high-tech industry was in a tailspin. At the time, the hikes were attributed to tight supplies, although then-Dell Computer CEO Michael Dell blamed them on cartel-like behavior by chip makers.

-- posted by Kirk

Top 147. Oct 15, 2005 3:13 AM

» SteveT - Wanted: a Better Ringmaster

By PETER S. COHAN

IN A THREE-RING CIRCUS, THE INDISPENSABLE MAN is the ringmaster, who directs the audience's attention to each act in turn. He makes sure that the lion tamer's act in ring one follows closely, but not too closely, behind the man shot from a cannon in ring three and the acrobats high above ring two. So it should be in the securities markets, which badly need an effective ringmaster to control the flow of information from those who create it to those who use it.

Today, the Securities and Exchange Commission manages Wall Street's three-ring circus with a whip and a gun. It cracks the whip to get traders to pay attention to its rules and, occasionally, it shoots a few right between the eyes. In April the SEC aimed such a shot at a gaggle of NYSE specialists who made almost $20 million by trading ahead of their clients. And two months ago, the agency struck again by indicting a day-trading executive and four former stockbrokers who took bribes to let the day traders eavesdrop on the brokers' squawk boxes.

According to the SEC, a rogue day-trading executive, John Amore, paid brokers at Merrill Lynch, Citigroup and Lehman Brothers to leave their phones off the hook right next to a squawk box that broadcast big trades to the brokers before the transactions were executed. Amore's firm, A.B. Watley, allegedly made $600,000 by taking positions in front of these trades and profiting after the trades moved the market. The Watley firm profited from the virtual certainty that a big trade would move the market in predictable ways.

It made $19,000 in a few minutes in one such trade: a Citigroup broker, Ralph Casbarro in Bayside, N.Y., left his phone off the hook for Watley. At 9:52 a.m. on July 24, 2002, Watley overheard a Citigroup trader announcing an order to sell Noble Corp. stock. Over the next three minutes, Watley day traders shorted 36,000 Noble shares -- selling borrowed shares with the almost certain promise of replacing them soon thereafter with less expensive ones and pocketing the difference -- at $28.63. In the next two minutes, Citigroup executed the sell order. As Noble shares dropped, Watley traders covered their shorts- buying 36,000 shares at $28.10-and pocketing a $19,000 profit.

In Wall Street, there are three rings of market information. The Inner Ring (for example, traders at major investment banks, hedge funds, and mutual fund complexes) is closest to trading decisions as they are made, and its members have the best information about the immediate future. The Middle Ring consists of intermediaries, such as analysts, brokers and the omnipresent NYSE specialists-15 of whom were charged in April with making $19 million by front-running. The Outer Ring is everybody else -- the ultimate buyers and sellers, for whom the market is a black box.

[rings]
In the markets, who should know what, where and when? The big profits are made when there are interactions across the rings of trading information.

Market regulation tries to enforce fairness by keeping walls between the members of the three rings and the information possessed in the inner and middle rings. Watley profited illegally by tunneling through one of these walls. Casbarro and his peers gave privileged access to the information in the middle ring. Through his illegal payments, Amore pretended to be in the outer ring while gaining access to the middle one.

Regardless of whether Amore's scam is isolated or more widespread, it raises a broader question of fairness. Who should know what, and when? The real profit action is in the interaction between the inner ring, where decisions to buy or sell big blocks of stock are made, and the middle ring where they are executed.

Why were the inner-ring sellers of Noble Corp. who placed their big order with Citigroup on July 24, 2002, so eager to dump their shares? Is it fair to those in the outer ring not to know the answer?

What the SEC needs is a ringmaster to impose order on the market from the moment its participants create material information. Its Regulation Fair Disclosure (FD) requires the managers of public companies to disclose market-moving information simultaneously to all investors. As the Watley case demonstrates, big trades move markets, so why are those in the inner ring afforded a special privilege of not disclosing their trading intentions?

Some shrug: Trading is a rough business; let the buyer beware. They would suggest that there is no reason that willing buyers or sellers should be protected from their ignorance of an upcoming trade. But there are already many protections for investors, ranging from the insider-trading laws to financial reporting requirements, which were put in place in the wake of abuses which cost investors money. The resulting loss of confidence diminished market liquidity and threatened the long-term survival of the markets.

Reg FD came about in 2000, after the SEC received 6,000 comment letters from individual investors who felt that securities analysts attending posh outings sponsored by management received market-moving information before they did. The SEC decided that Reg FD's cost to companies was far lower than the benefits of market liquidity that would result from plugging a leak in the dam holding in investor confidence.

Regulators must address practical questions if they are to head off further investor-confidence-shaking incidents like the Squawk Box probe and the NYSE specialist front-running indictments. Among them: How big should a trade be before disclosure is required? How soon before execution should such a transaction be disclosed?

An answer to the first question is to apply the materiality standard used for Reg FD. If the trade is considered potentially large enough to move the price more than, say, 1.5%, it should be disclosed. Regulators could set materiality thresholds by analyzing stock-price movements resulting from trades, based on the transaction's size as a percent of average daily trading volume. As for the timing of disclosure, it would be best to apply the Reg FD standard prohibiting selective disclosure by broadcasting the squawk box to all investors at the same time, not just the brokers in the trading room.

Those in the inner ring would no doubt resist the added transaction costs they would incur. However, over the longer term, stock prices would adjust to the idea that big investors will no longer be able to earn that little bit extra, due simply to the market-moving power of their fat wallets. Investors with the power to move markets owe a duty to smaller investors-and themselves -- to keep a level playing field.

If this helps preserve small investors' confidence in the market, the large ones ultimately will benefit from the added market liquidity. And until their information advantages evaporate, the stock market will remain a weighing machine whose scales slope steeply toward those privileged members of the inner ring.

PETER S. COHAN is president of Peter S. Cohan & Associates (http://petercohan.com1), a management-consulting and venture-capital firm in Marlborough, Mass. He's written seven books, including Value Leadership (Jossey-Bass, 2003).

Barron's welcomes submissions to "Other Voices". Essays should be about 1,200 words in length, and sent by e-mail to the Editorial Page editor at tg.donlan@barrons.com.
URL for this article:
http://online.barrons.com/article/SB1128...

-- posted by SteveT

Top 148. Oct 15, 2005 10:45 AM

» Normxxx - Re: Wanted: a Better Ringmaster

In response to Wanted: a Better Ringmaster posted by SteveT:

If this helps preserve small investors' confidence in the market, the large ones ultimately will benefit from the added market liquidity. And until their information advantages evaporate, the stock market will remain a weighing machine whose scales slope steeply toward those privileged members of the inner ring.

Peter needs to dream on! 'Twere ever thus— Wall Street will far rather suffer 'dead years' (e.g., from about the mid '70s to the early '90s; from the early '30s to the early '50s) than give up their privileges!

If worst comes to worst, they just wait for a fully new generation to come of age for 'fleecing.'

-- posted by Normxxx

Top 149. Oct 21, 2005 11:37 AM

» Normxxx - Wall Street 'Soldiers' On

Refco's Scandal Is That It Follows Many Scandals

By Ann Woolner, Bloomberg | 21 October 2005

[Normxxx Here: Still another tale of Wall Street venality. ]

Oct. 21 (Bloomberg)— Since Enron Corp. collapsed in 2001, prosecutors have been lining up corporate defendants, juries have convicted most of them and judges have been handing out prison sentences of 10, 15, 25 years.

It was in all the papers.

How, then, did Refco Inc.'s Phillip Bennett, the former chief executive of the major futures broker, miss these cautionary tales?

Even as all that was happening, Bennett was shifting from hiding place to hiding place a debt that at last count was $430 million, to hear Refco and federal prosecutors tell it.

Like a sleight-of-hand artist sliding a pea among three shells, Bennett is said to have slipped the debt off Refco's books into a New Jersey hedge fund, Liberty Corner Capital Strategy, and then into a company he controlled.

The loan was passed around so that when it came time to report Refco's finances, the debt was nowhere to be found.

Debt? What debt? When the sucker chooses the shell he believes is hiding the pea, it is never there.

At least, that's the way prosecutors and Refco executives describe it. Bennett says he isn't guilty, and perhaps that is true. After all, neither was Richard Scrushy, right?

Likewise, Refco's auditors and underwriters must have been at the movies when news reports told how auditors and underwriters at errant companies were getting punished.

Investor Lawsuits

WorldCom Inc.'s former investment banks, auditors and directors were forced to fork over $6.1 billion to settle investor suits, mostly within the few months before Refco went public in August.

``Underwriters' reliance on audited financial statements may not be blind,'' U.S. District Judge Denise Cote wrote last December when WorldCom's bankers tried to deny liability for phony numbers. ``Where `red flags' regarding the reliability of an audited financial statement emerge, mere reliance on an audit will not be sufficient to ward off liability.''

That court order should have jolted every investment banker handling a public offering. And yet, a mere nine months later, some of the same banks that had to pay out settlements in the WorldCom case were underwriting Refco's initial public offering, which we know now was seriously flawed.

Were they mistaking red flags for red herrings?

Stunning Development

``It's stunning, frankly, that one of the first major IPOs after the WorldCom decision, we have something this big, this glaring, overlooked,'' said Sean Coffey, the lead plaintiffs' lawyer in the WorldCom case who is consulting with institutional investors in Refco.

Underwriting for Refco's IPO was led by Credit Suisse First Boston, Goldman Sachs Group and Bank of America Corp. The first two each paid $12.5 million to settle the WorldCom suit while Bank of America agreed to shell out $460.5 million.

If being brought to the WorldCom settlement table chastened the banks, would the Refco scandal have happened?

All three have declined to discuss the matter.

``Because there are lawsuits,'' CFSB spokeswoman Victoria Harmon said in explaining her no comment.

Okay, so what about Refco's auditors at Grant Thornton LLP?

They were tricked, Edward Nussbaum, chief executive officer for Grant Thornton, said in an interview this week.

Telling the Truth

If only their client had told the truth, the auditors would have made sure the financial statements reflected it, he said.

``Everything we have seen so far indicates we complied with professional standards,'' Nussbaum said.

In fact, Grant Thornton did report a couple of serious weaknesses in Refco's system, but not enough to prompt a more thorough investigation.

``Given the whole atmosphere, you'd think everyone would be going over this stuff with a fine-tooth comb,'' says Harry First, New York University law professor and expert in business crime.

How is it possible that the Refco scandal could have happened within months after federal judges began ordering corporate miscreants to do hard time for a very long time? And how can it be that the very same investment banks that were forced to pay WorldCom investors could have been so sloppy at Refco?

Maybe they weren't. We will see.

Investor lawsuits against Refco, some of its former executives, its directors, its auditors and its banks began piling up at the federal courthouse in Manhattan on Oct. 11. That was the same day as Bennett's arrest, which was one day after Refco announced finding the disguised $430 million loan. By the time the courthouse closed yesterday, 10 had been filed, and there are surely more to come.

``You have all of these gatekeepers— the auditors and the underwriters— who are supposed to be there for us watching these transactions,'' says First.

If you're feeling a sense of deja vu, no wonder. You have read all this before. So much for deterrence.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx