The Whistleblower #26
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The Whistleblower

The Whistleblower #26 - May 21, 2002

Let's take a moment to remember the departed. Across corporate America, big business bosses are getting the boot (or are "being resigned") for having been involved in fraud and other deception. Corporate directors would like for the erstwhile executives and their transgressions to be forgotten, so that the gleam can be restored to their tarnished corporate image. But don't be fooled; this is not just a personnel problem. Corporate executives' abusive behavior didn't begin with Enron, and is not eradicated with the current shakeout. But it is worth beginning the tally of executives to fall after Enron in order to highlight the breadth of dishonesty in the corporate suites. From time to time, The Whistleblower will add to this list as part of our push for new rules that will obligate executives to come forward before financial fraud devastates retirees, investors, employees and the public.

Joe Bob Perkins, Reliant Resources Inc. Perkins resigned from his position as COO and president of the company's wholesale division last week. Perkins, who became a lightning rod during the California energy crisis for his company's profiteering in the state, resigned, along with Shahid J. Malik, president of Reliant Energy Services. The departures followed the revelation that Reliant engaged in massive volumes of sham electricity trades with CMS Energy Corp., which then re-sold the power to Reliant. This practice has the effects of inflating a company's apparent status as a market player and of inflating prices by making electricity appear to be more in demand than it actually is. At one point during the California energy crisis, Joe Bob Perkins chastised Californians: "Reliant hopes the Governor and others will stop these baseless accusations and focus on true solutions to California's energy shortage. We are now being singled out because we believe in an open market." Secretly manipulating energy sales volumes to deceive consumers and investors is, of course, a hallmark of an open market.

Tamela W. Pallas, CMS Energy Corp. Also in the fallout of the sham trading noted above, Tamela Pallas resigned as president and chief executive of CMS Marketing, Services & Trading Co. About three-fourth's of CMS' trading activity for the past two years consisted of phony transactions with Reliant and Dynegy, another energy firm. CMS Energy's share price is off more than 53% from its height last year and a series of class action lawsuits have been filed, on behalf of pensioners and other shareholders who have lost millions of dollars in the wake of the sham trading scandal.

John Rigas, Adelphia Communications Corp. Rigas, Adelphia's founder, resigned as chairman and CEO at the request of some of the company's directors after the company became the subject of an SEC investigation and federal prosecutors' inquiries. The SEC and Adelphia's auditor, Deloitte & Touche, are investigating whether the company reported inaccurate and misleading numbers of cable TV subscribers. Also being investigated are shady deals between Adelphia and the Rigas family, such as a company-funded golf course owned by the Rigases. Rigas' son Timothy resigned as CFO the day after his father's resignation.

Preventing the next scandal. After the corporate boards have thrown the bums out, what's to prevent their replacements from trampling consumers, investors, and the public in the name of profit? A simple changing of the guard is not enough to protect against future scandals. With compensation plans tied to stock performance and distorted reporting of executive stock options -- Federal Reserve Bank Chairman Alan Greenspan has called for more accurate disclosure of options -- corporations and the people that run them have financial incentives to defraud the public. Lawmakers must take away these incentives to financially harm the public, and law enforcement should more aggressively punish corporate malfeasance. That's why FTCR and California State Senator Martha Escutia have introduced SB 1452, which would reform corporate culture by protecting whistleblowers and by requiring corporate executives and upper management to report financial fraud as soon as they see it or face stiff penalties.





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