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EDITIONS
 Tuesday, 17 December, 2002, 10:59 GMT
2002: A scandalous year
Harvey Pitt appoints William Webster to lead the new accounting board.
The clean-up act went horribly wrong


The year 2002 will always be remembered for the wave of scandals that shattered investors' faith in corporate America.

Coat hangers costing $2,900 and a $15,000 dog umbrella - all charged to company expenses - perhaps best illustrate the extent of the skulduggery that came to light.

Key casualties
Paul O'Neill
Treasury secretary
Lawrence Lindsey
Economic adviser
Harvey Pitt
Chief regulator

These and other abuses by executives at US industrial conglomerate Tyco hit the headlines when public outrage was already at unprecedented levels.

Millions of shareholders had seen their savings swallowed up by accounting frauds at former stock market stars Enron and WorldCom.

And, after months of speculation, a growing sense of outrage finally culminated in the ousting of the three most senior economic officials in the Bush administration.

Insensitive

The departure of Treasury secretary Paul O'Neill and his economic adviser Lawrence Lindsey this month must partly be attributed to the mediocre performance of the US economy.

But the pair's apparent insensitivity towards ordinary Americans who had lost their savings to greedy executives had also taken its toll.

And Mr O'Neill's description of Enron's collapse as "the genius of capitalism" was perhaps the most unfortunate of his many political gaffes.

At that time, few would have dared predict that Enron - the mighty energy firm that went bust at the end of 2001 - would turn out to be the tip of the iceberg.

Digging deep

The ice lurking under the water - hidden below layers of manipulative accounting procedures - was much larger than anyone imagined.

As regulators and the FBI probed deeper, criminal investigations were launched into a host of companies, including some of America's best known brands such as KMart and AOL Time Warner.

WorldCom's fraud
26 June - $3.8bn
9 August - $7.1bn
5 November- $9bn
By August, the black hole of fraud at WorldCom had doubled from initial estimates, before growing to $9bn by November.

Fear gripped corporate America as executives, analysts, bankers, politicians and accountants all came under the searching light of the regulator's examination.

Failed regulator

Scandal even overtook the US' most celebrated homemaker, Martha Stewart, now known for allegations of insider trading rather than doling out daily domestic advice on television.

Then the chief regulator himself came under scrutiny, and was found wanting.

Harvey Pitt wriggled, resisted the jibes of his opponents, protested his innocence, and then resigned.

As the plot thickened, shareholders ran a mile from any firm with even the merest hint of a fudged account.

And as stock markets fell steadily lower, President George W. Bush made strong noises about sorting out the mess once and for all.

Hypocritical?

Prison sentences were increased, listed firms had to swear to the accuracy of financial statements and a new independent body was created to keep tabs on accountants.

Firms still under investigation
Enron
WorldCom
Tyco
AOL TimeWarner
ImClone
Johnson & Johnson
Qwest
KMart

Mr Bush has also been keen to quickly appoint successors, who have stepped up to the podium, loudly declaring their righteous zeal.

But the rush to appoint squeaky-clean new officials to better manage corporate US could not have had a worse beginning.

William Webster was chosen as the man to head the new accounting oversight body - designed to make sure companies became more transparent.

Little more than a month later, he resigned, following confusion over the disclosure of his former role on the board of one of the many companies being probed.

A long way from justice

Then there was the season of arresting and parading handcuffed executives in front of television cameras.

But despite the very public arrests, trials have yet to emerge for the biggest and blackest of the scandals.

And millions of dollars are still, by and large, hidden deep in the pockets of the wrongdoers.

Only Andersen - the auditors who signed off Enron's accounts - have been found guilty.

But even then, the sentencing of the culprits is still pending.

While justice is still a long way off, the rush of firms revealing skeletons in their cupboards has at least subsided.

And for that much at least, corporate America can be thankful and hope that the worse is finally over.


World perspective

UK in focus
See also:

06 Dec 02 | Business
06 Nov 02 | Business
13 Nov 02 | Business
16 Oct 02 | Business
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