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New York is about to become embroiled in two of the biggest corporate scandal-related trials since Enron Corp. collapsed two years ago. Former Credit Suisse First Boston banker Frank Quattrone appears in federal court today on obstruction of justice charges for sending an e-mail to his staff urging them to clean up their files after federal prosecutors issued subpoenas for records relating to the bank’s handling of initial public offerings. In state court, former Tyco International Ltd. chairman Dennis Kozlowski and former chief financial officer Mark Swartz face charges also today that they wrongfully took as much as $600 million in corporate funds. Both cases are certain to capture major media and public attention. The Wall Street Journal already has published previews of the cases, which involve high-profile executives who would face jail time if convicted. Indeed, the hoopla is likely to eclipse the fact that neither case involves the type of corporate wrongdoing that rocked the markets in the summer and fall of 2001. Enron, WorldCom Inc. (now MCI) and similar instances of financial chicanery centered on companies’ manipulating the books to mislead investors. At worst, Quattrone tried to cover up that CSFB improperly profited by allocating IPOs to a group of hedge funds that were willing to pay unusually high commissions. Federal law bars investment banks from profiting from the rise in shares issued from an IPO. CSFB paid $100 million to settle Securities and Exchange Commission charges related to the allocation arrangements. For Kozlowski and Swartz, the case, as noted Thursday in The Journal, concerns a straightforward criminal charge. The two received millions of dollars in forgiven loans and bonuses, some of which were not disclosed to shareholders. The government contends the two stole this money. The executives are expected to argue that it was legitimate compensation. Neither trial will involve questionable efforts to move debts off the balance sheet, the use of limited partnerships, schemes to inflate revenues and other accounting manipulations that shook investor confidence in the market. Those prosecutions have yet to materialize. Enron’s Ken Lay and Jeffrey Skilling, WorldCom’s Bernie Ebbers and HealthSouth Corp.’s Richard Scrushy have yet to face federal charges. (Ebbers was charged by Oklahoma’s attorney general in a move that federal prosecutors have criticized as jeopardizing their criminal probe.) Also on the criminal prosecution front, the Department of Justice said Thursday that it has brought its first case based on provisions in the Sarbanes-Oxley Act of 2002 against destroying documents. Thomas C. Trauger, a former Ernst & Young partner, was charged with obstructing the examination of a financial institution and falsifying records in a federal investigation in violation of S-O, as the landmark act is known. The violations involved the audit of NextCard Inc. Another former accountant pleaded guilty to obstructing a bank examination. “This is a bellwether day for the Corporate Fraud Task Force,” said Robert McCallum Jr., chairman of the President’s Corporate Fraud Task Force and acting deputy attorney general. “Today’s plea and arrest should remind accountants and lawyers not only of their commitment to represent their clients professionally, but also of our strong commitment to enforcing the law.” At Enron, the former energy trader on Wednesday sued the banks and brokerage firms that financed the deals that brought the company down. It charges that the firms participated in transactions they knew were questionable in exchange for large fees. Enron did not specify how much cash it was seeking. Enron also got court permission this week to seek the recovery of $53 million in accelerated deferred compensation that it paid to executives before its collapse. The Houston Chronicle said Tuesday that 114 current and former Enron employees withdrew deferred compensation. The company is permitting individuals to settle by agreeing to return part of the money. Those that remained with the company the longest could keep up to 60 percent of the compensation, while those that left immediately get only 10 percent. Copyright �2003 TDD, LLC. All rights reserved.

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