"I am incredibly nervous that we will implode in a wave of accounting scandals." -- Sherron Watkins, an Enron vice-president, in an August letter to Enron CEO Kenneth Lay Those who know "Chainsaw Al," the former Sunbeam (SOCNQ) chairman accused of cooking the books, say he's a notorious cheapskate. So why did Al Dunlap agree on Jan. 11 to pay $15 million as his share in the settlement of a class action brought by Sunbeam shareholders?
It's a good question, especially because it's unlikely Dunlap would have had to pay a penny of his estimated $125 million net worth even if he lost the case. That's because under Florida law, assets jointly owned by a husband and wife are "judgment-proof." Only the death of Dunlap's wife, Judy, or a divorce would have made recovery of the alleged $2 billion in damages possible. Dunlap's attorneys made it clear that he "has a strong marriage and his wife is in excellent health," says plantiffs' attorney Robert Kornreich, "so we probably couldn't reach those assets."
Despite that, legal experts say, Dunlap probably feared that if a jury had found him guilty of fraud, it would be devastating for him in a still-pending civil case brought by the SEC. It alleges that Dunlap and other officers engaged in massive financial fraud; a trial is set for 2003. Dunlap admitted no wrongdoing in the settlement and insists he's innocent. Get ready for the next round in the venomous public battle between Hewlett-Packard (HWP) and board-member Walter Hewlett, who is leading the fight to kill HP's proposed purchase of Compaq Computer (CPQ). The topic: HP CEO Carly Fiorina's post-acquisition employment contract. In previous filings with the Securities & Exchange Commission, HP said it was negotiating a richer deal for Fiorina, which would reflect the job of running a larger company. But in the latest filing, on Jan. 14, HP now says it will negotiate the contracts for Fiorina and five other execs "following the completion of the merger." The same goes for Compaq boss Michael Capellas and four of his execs.
Such details count. Corporate governance experts say shareholders have a right to know what top brass will earn before they vote. But given Fiorina's already-rich package of roughly $70 million in salary and options in her first two years, critics charge HP is trying to avoid antagonizing shareholders. Any big raises may not go over well, since HP's stock has fallen 60% since Fiorina took over in July, 1999.
Now BusinessWeek has learned that Hewlett--a member of the committee that drafts compensation--wants HP to release contract intentions before the shareholder vote, which could come in March. The likely first stop: the SEC. Says Hewlett's lawyer, Stephen Neal: "It's clearly material information, and the SEC ought to make them make it public." Businesses around the World Trade Center, we know, were crippled by the terrorist attacks. And since September 11, the Small Business Administration has doled out $200 million in loans to help them recover.
Yet it's not just mom-and-pop shops near Ground Zero getting these 30-year loans at 4%. An Oct. 22 decision by President Bush to make the whole U.S. and its territories a "disaster zone" made affected small businesses nationwide eligible, too. So since then, the SBA has granted more than 1,000 loans totaling $95 million outside metro New York. One-third of them have gone to Florida, where businesses say they've been hurt by the resulting plunge in tourism. Even companies in far-away Guam, five in all, have gotten loans totaling $156,000.
Some examples: Fast Lane Clothing, a beachwear maker in Tampa, claimed $168,000 after the cancellation of a September trade show at which it expected to book orders. "Tourists weren't traveling, so we weren't selling," says CEO Lori Davis. Adds Bob Odell, founder of Real World Diving in Guam, which received an SBA loan: "All of our tourists dried up."
To give more businesses a shot at loans, the SBA extended a Jan. 21 application deadline to Apr. 22. "Business owners were trying to weigh the options. `Do I take on more debt? What do I do?"' says an SBA spokeswoman. "This is going to take some pressure off." Does the introduction of the new single currency in Europe mean the prospect of thousands of unemployed central bankers? Could be.
The 12 countries of Europe using new euro notes still have 12 independently functioning central banks with their own governors and 56,000 employees who earn $4.2 billion a year. That's more than twice as many people employed by the U.S. Federal Reserve System, which serves a larger economy. Bank of Italy Governor Antonio Fazio alone makes $700,000, more than quadruple Alan Greenspan's salary.
The European Central Bank now sets the euro's interest rates and monetary policy. The national banks are meant to carry out ECB decisions. But the European Center for Integration Studies in Bonn says this division of labor is inefficient and in need of reform. Without francs, marks, and guilders to manage, the only responsibilities of national central bankers now are controlling money flow, collecting data, and, in some cases, supervising local banks. Does that really require 56,000 people? Here's a scenario: the company you work for crumbles but you really, really like your job. If you're the veteran hacks of Media Grok, an irreverent e-mail newsletter published by the now-defunct Industry Standard, you stay at your desk. With seed funding from MP3.com (MPPP) founder Michael Robertson and another angel investor, the seven writers launched a new version, Media Unspun, on Jan. 4. In a measure of the previous newsletter's popularity, they signed up 10,000 subscribers within a week.
For four years, Media Grok turned out witty daily assessments of the biggest dot-com news stories for free to about 100,000 people. When the Internet bubble burst, Media Grok's parent went bankrupt. The last e-mail went out in September.
Don't look for free content from the new iteration, though. Starting March, a yearly subscription to Unspun's daily summaries of tech-business news will cost $50. In the first issue, entitled "Cheer Up! At Least You're Not Enron," Unspun assessed articles about the failed giant from 10 publications, including the Houston Chronicle and Financial Times. Says Jimmy Guterman, editor of both the old and new newsletters: "We went from `Wouldn't it be nice to keep doing this?' to `Wouldn't it be nice if someone would pay us?' to `Let's just do it."' Well, either that or find a new job. Do you have a new year's resolution to lose weight? And who doesn't? You might be heartened by a recent U.S. Tax Court decision.
Special Trial Judge Carleton Powell ruled in December that surgery to remove hanging skin left after a woman's 100-pound weight loss was tax-deductible. Powell overruled the Internal Revenue Service, which called the woman's surgeries cosmetic and therefore not deductible.
Before you rush out for a tummy tuck, note the extenuating circumstances. The woman, an emergency-room nurse in Roanoke, Va., said the skin spilled onto her thighs and interfered with bending, running, and other activities required in her job. It was also susceptible to sores and infections. The judge agreed, allowing $7,691 in surgical costs as a medical deduction.
Tax lawyer Stephan Leimberg, who publicized the ruling in his online newsletter for financial professionals, says that it clarifies the tax distinction between what is treatment for an illness vs. what is merely cosmetic. Says Leimberg: "It's a recognition that obesity is a serious disease."