 |
|
||||||||||||||||||
|
Public Citizen last week called on both the Securities and Exchange Commission and the U.S. Senate Select Committee on ethics to investigate more potentially illegal stock trading by Senate Majority Leader Bill Frist (R-Tenn.).
Frist is already being investigated by the SEC and Department for his decision this past summer to sell all his shares in HCA, a hospital chain founded by his brother and father, right before the stock took a dive following a second-quarter profit announcement. If Frist traded based on information not available to the public, he would be guilty of insider trading.
Public Citizen investigated Senate documents regarding Frist's "qualified blind trusts," and last week announced it had found the following:
- In addition to well-publicized trading involving health care giant, and Frist family business, HCA Inc., there also have been questionable transactions in stocks of other companies that had ties to the Frist family.
- There appear to be inconsistencies between what Frist and his trustees reported as being in his blind trusts.
- There may have been improper communications between the senator and the trustees running his trusts.
"Our findings, though, raise more questions about the operation of Sen. Frist's blind trusts and suggest that the HCA deal may not have been an aberration," said Public Citizen President Joan Claybrook in a statement. "Given well-timed transactions that could involve millions of dollars in the stock of other companies with past ties to the Frist family, was all trading done on the up-and-up? It's important that these questions be answered."
According to Public Citizen's press release:
Most significant among the trading Public Citizen identified was activity in the stock of American Retirement Corp. The company, which offers services to seniors including independent living, assisted living, skilled nursing and Alzheimer's care, was established in 1978, and among its chief founders was Dr. Thomas F. Frist Sr., one of the principal founders of HCA and Frist's father.
In well-timed transactions in 2003 and 2005, three Frist family blind trusts may have reaped big gains by acquiring and selling American Retirement stock, according to disclosure documents. Frist family members remained major investors in the company until at least the late 1990s, corporate records show. Today, American Retirement regularly touts its past affiliation with Frist Sr., although it's not clear what any continuing association with the family might be.
In September 2003, the three trusts acquired American Retirement shares with an aggregate value of between $300,000 and $750,000. At the time, American Retirement's stock was valued at $3.13 and had been languishing for several years.
But after acquisition by the Frist family trusts, the price rose steeply. The stock was sold at some time before June 30, 2005, when the closing price reached $14.62—a 367 percent gain over the price at time of acquisition. Based on this price move, the aggregate value would have increased to as much as $1.4 million to $3.5 million.
Public Citizen also called into question two other transactions:
- Around May 2002, another Frist family trust sold shares of Triad Hospitals Inc., a Plano, Texas, company that owns and manages hospitals and ambulatory surgery centers and which was spun off from HCA in 1999. This sale took place six weeks before the stock reached a peak and began a 10-month slide, during which the price fell 56 percent. Disclosure documents suggest, but do not clearly show, that the value of the stock was about $12,350. Thomas F. Frist III, Sen. Frist's nephew, is a director and major shareholder of Triad, and the company is in business dealings with HCA.
- The same trust sold shares of LifePoint Hospitals Inc., a Brentwood, Tenn., hospital company that was also spun off from HCA in 1999. Around July 2001, the trust sold shares about four weeks before the stock reached a peak and began a three-month, 40 percent decline in price. About 10 months later, another sale took place very near a peak, according to disclosure documents, after which the price plummeted 57 percent over the next 12 months. Disclosure documents likewise suggest the value of these transactions were relatively small. LifePoint continues to have business dealings with HCA, including through HealthStream Inc, a health care industry training company. The chief executive officer and a co-founder of HealthStream is Robert A. Frist Jr., Sen. Frist's nephew.
For more see:
Two weeks ago, when oil executives From Exxon, Chevron, ConocoPhillips, Royal Dutch/Shell and BP testified before Congress, Senator Frank Lautenberg (D-NJ) asked all five executives: "Did your company or any representatives of your companies participate in Vice President Cheney's energy task force in 2001?"
All five said no or that they didn't know (the executives had not been sworn in under oath at the request of Sen. Ted Stevens (R-AK)).
Last week, the Washington Post reported on a White House document that showed that executives from at least of those four companies had met with Andrew Lundquist, who was the head of Cheney's energy task force.
Now, Democrat senators want the oil executives to come back and testify again, this time under oath. "I join my Democratic colleagues in demanding that these oil executives be brought back to Congress, sworn in and forced to testify again," said Senator Harry Reid, the Senate Democratic leader.
Sen. Pete Domenici (R-NM), who is the chairman of the Senate Energy and Natural Resources committee, joined with Sen. Jeff Bingaman (D-NM) and demanded a "prompt explanation, in writing, of these inconsistencies." He also said he would consider "further appropriate action" upon receiving explanations.
Lautenberg, meanwhile, has asked the Justice Department to investigate. "The White House went to great lengths to keep these meetings secret, and now oil executives may be lying to Congress about their role in the Cheney task force," Lautenberg said.
The records of the Cheney energy task force remain secret; Though advocacy groups, including the Sierra Club and Judicial Watch, filed suit to gain access, courts upheld Cheney's claim that the meetings should be kept secret on the basis of executive privilege. The task force issued a report that was generally seen as favorable to oil, natural gas, nuclear, and coal companies, helping them to expand production and opening up more federal lands for resource extraction. Environmentalists said they were shut out of the meetings.
For more, see:
The Senate last week passed a bill to require companies to devote more resources to their pension plans and would also give more money to the Pension Benefit Guaranty Company (PBGC), the federal pension insurance agency.
The bill closely matches a House bill that has passed two House committees but has net yet come up for a floor vote. However, the Senate bill offers airlines a generous 20 years to get their pensions in order, on top of the seven years that the bill provides all companies to get their pensions in order (by that rate, airlines won't have to fully fund their pensions until 2032).
Tradition pensions at U.S. companies are underfunded by an estimated $450 billion. The PBGC, meanwhile, is underfunded by $22.8 billion. The PBGC said it took responsibility for 235,000 new workers and retirees in 2005, bringing its total obligation to $3.7 billion, covering 1.3 million workers.
The Senate bill includes an amendment that would require the agency to count pilots who are forced to retire at 60, instead of 65, which would actually increase the pension agency's deficit by another $1 billion.
Senator Chuck Grassley (R-Iowa), said that forcing companies to put more money in their pensions now would avoid a bailout later.
"I do not want another savings and loan situation like we had in the late '80s, coming out of bad policy with the PBGC," Grassley told reporters. "As we've watched this corporation deteriorate rapidly in recent years, the possibility of such a bailout has become increasingly real."
For more, see:
Federal prosecutors have charged an employee of the U.S.-led Coalition Provisional Authority (CPA) in Iraq with accepting $546,000 in bribes for steering more than $13 million in contracts to an American businessman.
But, according to Ginger Cruz, the deputy special inspector general for Iraq reconstruction, this is just the first of 50 potential criminal cases regarding the spending of U.S. and Iraqi funds. "There's more to come," Cruz told reporters.
Prosecutors last week arrested former CPA employee Robert J. Stein along with Philip H. Bloom, who ran several companies based out of Romania on charges of fraud, money-laundering, and conspiracy. According to affidavits, Stein rigged bids so that Bloom's companies would win them. In return, Bloom arranged for $546,000 in transfers to Stein and his wife.
Stein, who was the controller and funding officer at the CPA office in Al Hillah, came to the post with a criminal record. In 1996, he pleaded guilty to federal fraud charges and went to jail for eight months.
This indictment is the latest in a string of charges of corruption in connection with more than $20 billion in federal contracts related to the Iraq war. Much of the controversy has revolved around Halliburton, which received several no-bid contracts.
For more, see:
The Public Company Accounting Oversight Board (PCAOB) has completed its audits of Ernst & Young and PricewaterhouseCoopers, and the results are not pretty.
The PCAOB found that eight of E&Y's audits and 30 of PwC's audits were so big that the accounting firms failed to obtain "sufficient competent evidential matter." These audits contained deficiencies of "such significance" that regulators may call into question their assessments of company finances.
In one case, E&Y did not even properly assess whether it was appropriate for a client to count a divested business as a discontinued operation. In nine cases, PwC did not properly confirm accounts receivable.
Now, the PCAOB has completed reports of all of the Big Four accounting firms. Last month, it found deficiencies in six percent of audits by Deloitte & Touche and 25 percent of audits by KPMG.
For more, see
In another sign that problems still persist in the financial services industry, the Securities and Exchange Commission last week released a report that found "significant" deficiencies at almost half (48 percent) of the broker-dealers they examined in the past year.
According to the SEC "significant" deficiencies are defined as those that "caused harm to customers or clients of a firm, had a high potential to cause harm or reflect recidivist misconduct."
The report does not list broker-dealers by name. This is the first year the SEC has done such a study, so there is no basis for comparison.
For more, see:
The Securities and Exchange Commission has promoted its Scott A. Taub, formerly the deputy chief accountant, to be the agency's acting chief accountant, replacing Donald T. Nicolaisen, who resigned in October after two years in the position.
Before joining the SEC in 2002, Taub was a partner at now-defunct Arthur Andersen.
While that fills one vacancy, the SEC still needs directors for two of its main divisions—market regulation and investment management. It also needs a new chairman for the Public Company Oversight Board. Many observers believe that this will be an opportunity for new SEC chairman Christopher Cox to put his stamp on the agency.
For more, see:
Federal prosecutors have indicted four Hollinger executives, including former chairman and CEO Conrad Black, on fraud charges related to the abuse of company perks and the $2.1 billion sale of several hundred Canadian newspapers.
The executives were also charged with illegally diverting $32 million from the company through a series of complex transactions and another $51.8 million in relation to the sale of CanWestGlobal Communications Corp.
"Officers and directors of publicly traded companies who steer shareholders' money into their pockets should not lie to the board of directors to get permission to do so," said U.S. Attorney Patrick Fitzgerald in a statement. He added that insiders "whose job it was to safeguard the shareholders made it their job to steal and conceal."
Prosecutors say that Black used a company jet for a vacation with his wife in French Polynesia and also charged the company $42,000 for his wife's birthday party at a New York restaurant.
If convicted, Black could face up to 40 years in prison and $2 million in fines.
According to an SEC report on Hollinger (entitled "A Corporate Keptocracy"), "this story is about how Hollinger was systematically manipulated and used by its controlling shareholders for their sole benefit, and in a manner that violated every concept of fiduciary duty." The report described Black and chief operating officer David Radler of having a "ravenous appetite for cash."
Among the outrageous expenses: $2,463 on handbags; $2,785 in opera tickets; $2,083 on exercise equipment; $24,950 on "summer drinks"; $28,480 for three dinners for former secretary of state (and Hollinger board member) Henry Kissinger; $390,000 to lease and repair various cars, including a Bentley and Rolls Royce in London; and $8.9 million worth of FDR memorabilia for Black's recent book on FDR.
Hollinger's board of directors also came under heavy criticism in that report. In addition to Kissinger, the board had several other politically connected directors: Robert S. Strauss, a former chairman of the Democratic National Committee and ambassador to the Soviet Union; Richard R. Burt, a former United States ambassador to Germany; former Illinois Governor James Thompson (who chaired the company's audit committee, and was described by the report as "ineffective and careless") and Richard N. Perle, assistant secretary of defense under President Ronald Reagan the former chairman of a Pentagon advisory board. Perle was heavily scolded in the report, which says that Perle "repeatedly breached his fiduciary duties" a member of the board's executive committee.
According to the report, Perle signed papers that allowed Black and Radler to loot the company without even bothering to look at what he was signing. "It is difficult to imagine a more flagrant abdication of duty than a director rubber-stamping transactions that directly benefit a controlling shareholder without any thought, comprehension or analysis," the committee report says. "In fact, many of the consents that Perle signed as an executive committee member approved related-party transactions that unfairly benefited Black and Radler, and cost Hollinger millions."
Perle also ran an Internet investment arm of the company for Black, which, despite losing money, netted Perle $3.1 million in bonuses. A special board panel said that Perle should return $5.4 million in pay after "putting his own interests above those of Hollinger's shareholders."
For more, see:
What happens when a corporate director presides over a multi-billion corporate scandals like Enron, WorldCom, or Adelphia? According to a study released by Forbes.com and The Corporate Library, they often get better jobs.
According to the study, these so-called "Teflon" directors have gotten jobs at companies like Apple Computer, Coca-Cola, Yahoo!, American International Group, Sprint Nextel, Kraft Foods, Lockheed Martin, and Viacom.
"Companies should want their directors to be as vigilant, assertive and competent as possible, so why would one overlook evidence that the individual may have failed in one or more of these areas in the past?" asks Jackie Cook, senior research associate at The Corporate Library, a corporate governance watchdog. "Since we aren't privy to what goes on in the boardroom, the only evidence we have in judging individual board members is their past and present performance on other boards."
"But," reports Forbes.com, "many companies don't make it easy for shareholders to find out where their directors have been. Sprint Nextel's biography for William E. Conway, for instance, mentions nothing of his stint at Enron. Nor will you find the Global Crossing directorship of Eric Hippeau among the listed achievements in his Yahoo! bio. Director biographies on the Web sites of Lockheed, Viacom, Coca-Cola, Avon Products and Overstock.com also fail to mention service at Enron, Global Crossing or WorldCom. Viacom and Coca-Cola point out that their practice is to mention only current affiliations."
For more, see:
Last week, Public Citizen wrote a letter to SEC Chairman Christopher Cox, asking him to investigate more potentially illegal stock trading by Senate Majority Leader Bill Frist (R-TN) (see News Item #1).
Public Citizen investigated Senate documents regarding Frist's "qualified blind trusts," and found the following:
- In addition to well-publicized trading involving health care giant, and Frist family business, HCA Inc., there also have been questionable transactions in stocks of other companies that had ties to the Frist family.
- There appear to be inconsistencies between what Frist and his trustees reported as being in his blind trusts.
- There may have been improper communications between the senator and the trustees running his trusts.
In the letter, Public Citizen writes:
As you know, serious questions have been raised about Senate Majority Leader Bill Frist and the conduct of his qualified blind trusts as approved by the U.S. Senate Select Committee on Ethics under Senate ethics rules.1 The Department of Justice and the Commission are investigating the matter, considering whether Sen. Frist may have directed sale of stock in HCA Inc., a family business, based on insider knowledge that the stock's value was likely to drop.
We write to request that the Commission investigate additional matters regarding Sen. Frist and his blind trusts. As detailed below, our examination of disclosure documents on file with the Senate Office of Public Records indicates that, similar to the situation with HCA, there have also been questionable transactions lucrative to Frist family members in stocks of other companies that had ties to the Frist family.
As This Week's Action Item, please write your own letter to Chairman Cox, asking him to investigate Frist and his blind trusts based on what Public Citizen has uncovered.
We encourage you to tell everyone you know about the new 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?
The Tax Justice USA, the new American branch of the Tax Justice Network (TJN), seeks a director to organize and build the organization in the US.
TJUSA will initially operate in the offices and under the aegis of Citizens for Tax Justice (CTJ), whose director serves on the steering committee of TJN.
TJUSA is network of organizations and has commitments from a number of major Washington-based NGOs to become constituent members and serve on its board.
The director will have the task of establishing the network, gaining new adherents, developing educational materials on the issues, and dealing with the media and Congress. He or she will also develop a focus on corporate social responsibility and accountability which seeks to add "pay your taxes" to that boilerplate.
A strong director would have experience in working with NGOs and/or Congress as well as an understanding of tax policy.
TJN and CTJ are devoted to making our tax laws fair and adequate to pay for important public services. TJN focuses particularly on curbing offshore tax abuses by corporations and wealthy people. TJN currently operates worldwide, with a concentration in Europe.
The director would be at the beginnings of what will become a major issue movement in the United States.
For more information about CTJ and TJN, see www.ctj.org & www.taxjustice.net.
Qualifications: NGO and/or tax and legislative expertise and experience. Sense of humor. Self-starting. Hard-working. Ability to organize and persuade others. A legal background would be helpful.
Salary: Competitive in the non-profit area. Specific amount dependent on skills and experience.
Contact: Bob McIntyre, CTJ director. 202.299.1066 x22.
If you have a job you'd like to see posted in the Corporate Reform Weekly, please e-mail Citizen Works' Lee Drutman.
About Citizen Works
| Contact Us
| Privacy Policy
| Jobs/Internships
ALL CONTENT © 2004 CITIZEN WORKS
