 |
|
||||||||||||||||||
|
Vol V, #28
July 24, 2006
In
This Issue…
Corporate
Scandal
1.
First criminal charges in stock options backdating scandal
2.
Study suggests that at least 2,000 companies have backdated options
Lobbying
and Ethics Reform
3.
Washington lobbying costs rise to $2.4 billion for 2005, up 14 percent
4.
Ralph Reed’s loss in Georgia seen as sign that voters care about scandal
FDA
5.
Survey finds science takes a back seat at FDA
SEC
6.
SEC gets a new chief accountant
This
Week’s Action Item:
Let’s
keep fighting for publicly-funded elections
Corporate
Scandal
1.
First criminal charges in stock options backdating scandal
Many companies
are being investigated for illegal stock options backdating (more than 80, at
last count), but last week executives at Brocade Communications were the first
to be officially charged with securities fraud.
Federal
prosecutors officially accused former Brocade CEO Gregory L. Reyes and former
Brocade VP for human resources Stephanie Jensen with doctoring board meeting
minutes, job-offer letters, and other documents in order to backdate stock
options to a time when Brocade’s share price was lower. Both face much as 20
years in prison and a fine of $5 million. Both were also named in a civil
complaint filed by the SEC, which also named the company’s former CFO, Antonio
Canova.
In 2000, CEO
Reyes was on the Forbes list of the 400 richest Americans. At one point,
Brocade was worth $24 billion, but had to cut its earnings per share by 20
percent when it restated its results for 1999 to 2004. Today, the company is
valued at $1.6 billion.
Charges at
other companies are expected to follow soon.
Now that
prosecutors in San Francisco have fired the first volley, many lawyers said
they expected a flurry of indictments to follow. “This case will not be the
last,’’ said Linda Chatman Thomsen, the director of the S.E.C. enforcement
division, told reporters.
SEC Chairman
Christopher Cox, speaking at a news conference in San Francisco, called
backdating “poisonous.” He said his agency “is committed to bringing it to an
end nationwide.”
Backdating
options benefits the holders of options (typically top executives) because when
the options holders cash out on stock options, they get the difference between
the current value of the stock and the value of the stock on the day the option
was granted. If the stock option grant is backdated to an earlier date when the
stock was worth less, the options holder will get more money when the holder
cashes out.
For more, see:
“2 Are Charged
in Criminal Case on Stock Options,” By DAMON DARLIN
and ERIC DASH
of the New York Times:
http://www.nytimes.com/2006/07/21/business/21options.html
“Ex-Brocade
CEO Reyes Charged With Fraud,” By DAN GOODIN, The Associated Press: http://www.washingtonpost.com/wp-dyn/content/article/2006/07/20/AR2006072001250.html
“Scrutiny of
executive windfalls intensifies: Backdating stock options to fatten CEO pay may
have been surprisingly widespread. Federal lawsuits loom,” By Mark Trumbull,
The Christian Science Monitor:
http://www.csmonitor.com/2006/0719/p02s01-usju.html
2.
Study suggests that at least 2,000 companies have backdated options
While at least
80 companies are under investigation for illegal stock options backdating, one
academic study suggests that the practice may be far more widespread. According
to the study, more than 2,000 companies may have used backdated stock options
to benefit top executives.
By the count
of Erik Lie, an associate professor of finance at the Tippie College of
Business at the University of
Iowa, 29.2 percent of companies have backdated options and 13.6
percent of options granted to top executives between 1996 and 2005 where
backdated to a time when the stock price was worth less, increasing the pay-off
from cashing out. The numbers are slightly higher for high-tech firms.
“It is pretty
scary, and it’s quite surprising to see,” Professor Lie told the New York
Times. “Over all, our results suggest that backdated or otherwise manipulated
grants are spread across a remarkable number of firms, although these firms did
not manipulate all their grants.”
The study also
found the small auditors were more likely to be associated with a large
proportion of late filing and unscheduled grants.
For more, see:
“Study Finds Backdating of Options Widespread,”
By STEPHANIE
SAUL of the New York Times: http://www.nytimes.com/2006/07/17/business/17options.html
Lobbying
and Ethics Reform
3.
Washington lobbying costs rise to $2.4 billion for 2005, up 14 percent
Corporations,
trade associations, and other groups spent a combined $2.4 billion on lobbying
efforts in Washington in 2005, according to PoliticalMoneyLine. The $2.4
billion was up 14 percent higher than 2004, when organized interests spent $2.1
billion. And it is 50 percent more than the $1.6 million spent in 2000.
The increase
in lobbying expenditures closely tracks an increase in federal discretionary
spending, which jumped from $614.8 billion in 2000 to $967.9 billion in 2005,
up 58 percent.
Leading the
way in lobbying expenditures was the Chamber of Commerce, which spent $38.9
million, followed closely by AARP, which spent $36.3 million. The third most
aggressive spender was General Electric, which spent $21.5 million to influence
the federal government.
The number
four spender was the American Medical Association, at $19.2 million, followed
by the US Telecom Association at number five. Number six was AT&T, which
last year bought SBC, at $16.4 million.
Rep. Christopher
Shays (D-Conn.) told Bloomberg News that the continued increase in lobbying
spending, “shows you how important it is that there be the proper kind of
disclosure, transparency, rules and regulations so you don't see abuses.”
Along with
Rep. Martin Meehan (D-Mass.), Shays has proposed to require lobbyists to
disclose all fundraising efforts and to prohibit lobby groups from funding
lawmaker’s trips. However, the weak lobbying reform bill passed in the House
earlier this year (and still languishing in conference committee) ignored these
common-sense reforms.
For more, see:
“Lobbying funds spiral to $2.4b: General Electric tops corporate list of
spenders,” By Jonathan D. Salant and Jeff St. Onge, Bloomberg
http://www.boston.com/news/nation/washington/articles/2006/07/07/lobbying_funds_spiral_to_24b/
See also
PoliticalMoneyLine at www.fecinfo.org
4.
Ralph Reed’s loss in Georgia seen as sign that voters care about scandal
Last week,
Ralph Reed, a former top campaign official for President Bush with close ties
to Jack Abramoff, was defeated in a bid to become lieutenant governor of
Georgia. The loss was widely seen as a powerful signal that voters do care if
candidates are connected to Abramoff and won’t support candidates embroiled in
lobbying scandals.
“It’s clear
that politicians that put money before their morals should be very worried by
these results,” said David Donnelly, the director of Campaign Money Watch, said
in a press release.
“The
resounding defeat yesterday of rising political star Ralph Reed by a lesser
known state senator in Georgia sends a powerful message to legislators about
the level of voter frustration with the lobbying scandals that have plagued the
Congress during the last year,” said US PIRG Democracy Advocate Gary
Kalman in a press release. “Following revelations of Ralph Reed's involvement
with gaming interests represented by convicted lobbyist Jack Abramoff, Reed's
support among both donors and voters began to fall.”
“Since the
candidates were politically quite similar, these results show that public concern
over corruption has gone beyond what voters tell pollsters on the phone to what
they decide in the voting booth,” Kalman added. “We can only hope that
Speaker Hastert and Majority Leader Frist are listening.”
Meanwhile, a
Washington Post article suggested that “the defeat of scandal-stained Ralph
Reed in Georgia on Tuesday showed that federal investigators could tip some key
House and Senate races this fall, according to party strategists.”
Several
Republican incumbents embroiled in the Abramoff scandal are seeking re-election
this fall. Two of the mostly hotly-watched races involve Rep. Robert
W. Ney (R-Ohio) and Sen. Conrad
Burns (R-Mont.).
Meanwhile, a
weak lobbying reform bill continues to languish in conference committee.
For more, see:
“Ralph Reed Loses Georgia Primary Race,”
By SHAILA DEWAN,
New York Times
“Corruption
Issue Comes to Fore: Reed Is Seen as First Casualty, and Parties Brace for
More,” By Jim VandeHei of the Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/07/19/AR2006071901714.html
FDA
5.
Survey finds science takes a back seat at FDA
Three in five
FDA employees said that they knew of cases “where commercial interests have
inappropriately induced or attempted to induce the reversal, withdrawal or
modification of FDA determinations or actions,” and fifty percent said they
felt that non-governmental interests (such as advocacy groups) had induced or
attempted to induce such changes.
These are some
of the many findings from a Union of Concerned Scientists (UCS) survey of 5,918
FDA scientists. The survey finds widespread examples of cases where science has
taken a backseat to politics and paints a picture of an agency where employees
are afraid to speak out for public safety. For example, forty percent of
respondents fear retaliation for voicing safety concerns in public. And more
than a third of the respondents said they did not feel they could express
safety concerns, even inside the agency.
Additionally:
-
Only 47 percent think
the "FDA routinely provides complete and accurate information to the
public."
-
81 percent agreed that
the "public would be better served if the independence and authority of
FDA post-market safety systems were strengthened."
-
70 percent disagree
with the statement that FDA has sufficient resources to perform effectively its
mission of "protecting public health…and helping to get accurate
science-based information they need to use medicines and foods to improve their
health."
-
61 percent of the
respondents knew of cases where "Department of Health and Human Services
or FDA political appointees have inappropriately injected themselves into FDA
determinations or actions."
"Science
must be the driving force for decisions made at the FDA. These disturbing
survey results make it clear that inappropriate interference is putting people
in harm's way," Dr. Francesca Grifo, Senior Scientist and Director of
UCS's Scientific Integrity Program, said in a Press Release. "FDA leaders
should act now to improve transparency and accountability and renew respect for
independent science at the agency."
Dr. Sidney Wolfe,
Director of Public Citizen’s Health Research Group, had this to say in a press
release:
“The culprit
is two-fold. First, FDA user fee legislation creates an inherent conflict of
interest. Under this legislation, companies – primarily drug companies – this
year will pay $380 million to the FDA. An agency cannot effectively regulate
industries that pay the salary of so many of its employees. Second, there is a
dangerous lack of congressional oversight of the FDA. The last serious
oversight hearing was held 20 months ago by Sen. Charles Grassley (R-Iowa).”
“Meanwhile,
the agency continues to approve drugs that have no unique benefits but serious
risks that can endanger the lives of those who take them, and fails to promptly
remove drugs from the market once presented with evidence of dangers. It is
inexcusable for Congress to sit idly by while patients die needlessly.”
For more, see:
“FDA
Scientists Pressured to Exclude, Alter Findings; Scientists Fear Retaliation
for Voicing Safety Concerns,” UCS Study:
http://www.ucsusa.org/scientific_integrity/interference/fda-scientists-survey-summary.html
“Survey
Confirms Long-Standing Problems at FDA That Stem From Lack of Congressional
Oversight and Massive Drug Industry Funding of the Agency,”
Statement of
Dr. Sidney Wolfe, Public Citizen:
http://www.citizen.org/pressroom/release.cfm?ID=2240
SEC
6.
SEC gets a new chief accountant
The Securities
and Exchange Commission is slated to get a new chief accountant, filling almost
a yearlong vacancy. According to a report in the Wall Street Journal, SEC
Chairman Christopher Cox is planning to name Conrad W. Hewitt, a former
commissioner of California's department of financial institutions and
superintendent of banking for the state.
Prior to that,
Hewitt was a managing partner with Ernst & Young, where he worked for 23
years. He also currently serves on the boards of several companies and is on
the audit committees of a few.
The Journal quotes the head of one major US
accounting firm as describing the SEC’s chief accountant as “the most powerful
accountant in the world.”
The seat has
been open since last fall when Donald Nicolaisen left to return to the private
sector.
For
more, see: “WSJ: SEC Seen Naming Conrad Hewitt As Chief Accountant,” by the Dow
Jones News Service
This
Week’s Action Item:
Let’s
keep fighting for publicly-funded elections
While lobbying
reform is going nowhere in Congress and despite the recent Supreme Court ruling
that money is still protected speech, efforts to fix our broken pay-for-play
system are still gaining momentum.
In California,
voters will have the chance to vote this November on Proposition 89, which
provides public funding of elections.
According to
the California Clean Money Campaign, “Under Proposition 89, candidates would
qualify for public funding once they show they have community support by
collecting a set number of $5 contributions. Once qualified, Clean Elections
candidates agree to take no private contributions and must adhere to strict
spending limits. Candidates running for state assembly, state senate, and all
statewide offices, including the governorship, would be eligible”
California
Clean Money Campaign has a petition to demonstrate grassroots support for
Proposition 89. As this week’s action item, we urge you to sign the petition
at: http://www.caclean.org/petition/
Even if you
don’t live in California, it’s still a great opportunity to show support for
publicly-funded elections.
We also
encourage you to check out the new “Voters First” pledge unveiled by Common
Cause, Public Campaign Action Fund, Public Citizen, and the U.S. Public
Interest Research Group (US PIRG)
The “Voters
First” pledge, which the groups will ask all congressional candidates to sign,
includes “specific policies to make elections fair for all, restore
congressional accountability, and protect voters’ right-to-know. Activists will
use the pledge in congressional districts across the country to press
candidates for federal office to support a comprehensive agenda to clean up
Congress.”
Specifically,
The Voters First Pledge calls on candidates to put voters ahead of lobbyists by
supporting legislation to:
1. Make
Elections Fair. Establish and enforce campaign spending limits by providing a
set amount of public funding for all candidates who agree to take no private
contributions.
2. Restore
Accountability. Pass and enforce meaningful new restrictions on gifts and
travel from lobbyists and other powerful interests for members of Congress.
3. Protect
Voters’ Right-To-Know. Require full disclosure on the Internet of all
lobbyists’ contributions and any fundraising help members of Congress get from
lobbyists.
To find out
how you can get involved see: http://www.commoncause.org/site/apps/nl/content2.asp?c=dkLNK1MQIwG&b=194883&ct=2673077
Help
spread the word about The People's Business
We encourage
you to tell everyone you know about the Citizen Works book, The People's
Business and to distribute promotional flyers locally. Flyers are available
online, or if you would like to have some flyers mailed to you, please e-mail news@citizenworks.org.
The People's
Business, which is available in stores everywhere, examines the very nature of
corporate power, presenting a range of strategies to curtail it, explaining how
ordinary people can restore citizen control. Bringing together the
recommendations of the Citizen Works Corporate Reform Commission—a coalition of
leading authors, activists, scholars, and professionals—The People's Business
is a vital, clearheaded plan for strengthening individual rights, transforming
corporations into engines of public prosperity, and creating a sustainable,
life-respecting society where the people have the power.
Bolstered with
relevant history and examples, The People's Business is a lively book that will
appeal both to deeply-committed long-time activists looking for a coherent
approach in the struggle for corporate accountability as well as thoughtful
citizens everywhere who may be looking for immediate measures that serve as
effective means of corporate reform.
It is our hope
that The People's Business will serve as an important tool in educating people
about what they can do to challenge corporate power. But it will only be an
important tool if people actually read it. That's why we need your help in
spreading the word!
Why not pick
up your copy at a bookstore today if you haven't already?
MAKE YOUR
VOICE HEARD
* White House Comment Line: 202.456.1111
* White House Fax Line: 202.456.2461
* E-mail President George W. Bush
* E-mail Vice President Dick Cheney
* White House Address: 1600 Pennsylvania Ave, Washington, DC 20500
* US Capitol Switchboard: 202.224.3121
*
Contact your
senators: http://www.senate.gov/general/contact_information/senators_cfm.cfm
· Contact your congressional
representative: http://www.house.gov/writerep/
To
unsubscribe: unsubscribe-corporatereform@lists.citizenworks.org
To subscribe: subscribe-corporatereform@lists.citizenworks.org
Questions,
comments? ldrutman@citizenworks.org
