Up Front
Edited by Sheridan Prasso
Talk Show
"I'm not a stockbroker. I'm not a stockpicker. My attitude on Wall Street is: They'll buy you or sell you depending upon if it's in their interest." -- President George W. Bush
HALL OF SHAME
At WorldCom, It's Deja Vu All Over Again
Should we have seen it coming? A decade before WorldCom admitted to mammoth accounting fraud, it was a division of IDB Communications, a high-flying global satellite outfit that transmitted Billy Joel concerts to Russia and images of the gulf war to TVs around the world. IDB was lauded as an innovative company, and its founder, Jeffrey Sudikoff, was named Entrepreneur of the Year by Merrill Lynch in 1994.
But that was before the top execs, CEO Sudikoff and President Edward Cheramy, were indicted on charges of insider trading and securities fraud.
Here is the ugly story: The company's accountants, Deloitte & Touche, abruptly quit in 1994, citing "an inability to rely on management's representation" of its numbers--first-quarter earnings of $8.8 million that matched analysts' forecasts.
That revelation caused the stock to tank. And Bernie Ebbers then snapped up IDB at a discount. He merged IDB, which was based in California, with his existing telecom company and named the new company after IBD's international division, WorldCom.
Investigations came next. The U.S. Attorney General's Office in California charged Sudikoff and Cheramy with forging documents to artificially inflate revenues, filing fake documents with the Securities & Exchange Commission, and selling millions worth of stock ahead of bad news. Sudikoff pleaded guilty to two counts of insider trading and one count of failing to disclose stock trades to the SEC. He was sentenced to one year in a minimally restrictive correctional facility, $3.8 million in fines, and three years' probation. Cheramy pleaded guilty to one count of insider trading. He received three years' probation, 500 hours of community service, and $350,000 in fines. Neither could be immediately reached for comment.
Ebbers first met Sudikoff in pre-merger talks in July, 1993--months before the accountants quit. They signed a confidentiality agreement "in anticipation of the possibility of exchanging confidential information," according to documents filed with the SEC. (Neither Ebbers nor his lawyer returned calls about events of the period.) The moral? Ebbers once benefitted from other executives' crimes. Now he could face the same music himself.
By Heather Timmons
SECOND ACTS
Can She Whip the Rest of 'em into Shape?
For Sherron Watkins, the Enron whistle-blower, the collapse of her company and the soul-searching it set off may soon lead to a new career. While she still works at bankrupt Enron--making $165,000 a year sorting out the value of Enron's assets for its creditors--she's hoping to form her own boutique consulting firm.
Watkins wants to hire high-powered retired execs and former accountants and offer reviews of corporate-governance practices and training for directors, according to her lawyer, Philip Hilder. Such a business "would be more of a cause than a job for her," says Hilder.
Watkins fears her job prospects elsewhere could be hurt by her actions at Enron, according to Hilder, because potential employers might view her as a renegade. Her numerous speeches, given on her vacation time to nonprofits and universities, are mostly unpaid. And she's not counting on much of a windfall from a book she's collaborating on, either. So, unlike the Enron bigwigs who cashed in big on stock options, look for Watkins to remain a working stiff. At least she won't be wearing stripes.
By Wendy Zellner
DETOURS
Toyota Gets the Urge to Fly
Not content to stick to the road, Toyota Motor (TM
) is looking to spread its wings in the growing market for small aircraft. It has been test flying a prototype for a single-engine propeller plane over the Mojave Desert since May. The fuselage is made of lightweight carbon fiber instead of the aluminum used in other small planes. That makes it more aerodynamic. Toyota plans to target the small but growing leisure and puddle-jumping commercial sectors currently dominated by Cessna (TXT
) and New Piper Aircraft.
But it will take a few more years of testing before Toyota is ready to put it on the market. "The next step is a matter of years, not months," says Mike Michels, a spokesman for Toyota's U.S. sales unit.
This isn't Toyota's first foray into aviation. It won approval from U.S. authorities in 1996 to market a propeller-plane engine based on technology used in its Lexus LS400 sedan. That project was halted two years later after the engine was deemed too heavy and too expensive to commercialize. So there won't be a Lexus engine under the hood of Toyota's new plane. Toyota says that the engine comes from an "outside manufacturer."
By Chester Dawson
BRAIN WAVES
Can a 37¢ Bribe Get Bills Paid on Time?
Bills tend to sit around past their due dates. That costs telephone companies, utilities, and others millions in financing costs. So a man in Bethesda, Md., invented Urgent Reply Mail. It works like this: Along with the bill, businesses can send a special return envelope with prepaid postage, much like existing Business Reply Mail. To take advantage of it, customers must pay their bills before a cutoff date.
Bob Fredman, who patented the envelope, is trying to line up a credit-card company for a trial run. He also has been trying to sell it to the cash-strapped U.S. Postal Service. The Postal Service has been looking to prevent more remittance mail from going electronic, but it has been cool to the idea. Even though it could charge a 2 cents to 10 cents fee for each envelope, as with Business Reply Mail, a spokesman says: "We question whether there really is market demand."
Another snag: What if the envelope is sent after the cutoff date? The biller may still pay the postage, says Fredman, but suspend the favor to chronic procrastinators. Or bump up the next bill by 37 cents.
By Paul Magnusson
MAD AVENUE
Listen Up, Sucka, the '80s Are Back
Music and fashion from the 1980s are back in vogue, so advertisers are dredging up some of the decade's iconic TV stars to pitch companies in television commercials. Alien puppet ALF, Mr. T from The A-Team, and Lifestyles of the Rich and Famous host Robin Leach are just a few of the '80s stars making their comebacks.
ALF, whose show ran from 1986 to 1990, appears in an ad for discount phone service 10-10-220, while Mr. T endorses 1-800-COLLECT. Both are operated by Telecom USA, a subsidiary of WorldCom (WCOEQ
). Leach, who launched his celeb-watching show in 1983, is doing ads for Courtyard by Marriott hotels (MAR
).
Nostalgia for the '80s comes as no surprise to pop culture experts. Robert Thompson, director of Syracuse University's Center for the Study of Popular Television, says there's usually a two-decade break between a TV show and the resurrection of its stars. "Over the next 10 years, '80s stuff will be all over the place," says Thompson. Time to break out the leg warmers?
By Julia Cosgrove
THE BIG PICTURE
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Copyright 2002, by The McGraw-Hill Companies Inc. All rights reserved.
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