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October 3, 2002
House Passes Another Ch. 12 Extension
The House passed H.R. 5472 by voice vote on Oct. 1, extending chapter 12
for another 6 months. The term would be from Jan. 1, 2003 through July
1, 2003. The bill now goes to the Senate. Chapter 12 has been reenacted
by short term extensions several times. A permanent extension is
contained in the long-stalled conference report on H.R. 333.
Federal Prosecutors Charge Former Enron CFO with Fraud
The Justice Department yesterday charged former Enron Corp.'s chief
financial officer, Andrew Fastow, with fraud, money laundering and
conspiracy in a criminal complaint that also accuses Merrill Lynch &
Co. in aiding one element of the alleged fraud, the Wall Street
Journal reported. Former CEO Jeffrey Skilling and former chairman
Kenneth Lay were not named, but the Justice Department indicated that
they face securities, accounting, tax or insider-trading charges, other
officials said. Prosecutors charged that Mr. Fastow was involved in many
schemes to defraud Enron and that he skimmed millions of dollars in
profits from these schemes, in addition to taking kickbacks including a
series of $10,000 checks made out to his son and wife from former Enron
Managing Director Michael Kopper. However, Fastow's lawyer, John W.
Keker, emphasized that his client was simply following orders. 'Enron's
Board of Directors, its CEO and its chairman directed and praised his
work,' Keker said. 'Accountants and lawyers reviewed and approved his
work.'
WorldCom $1M Retainer Bid Withdrawn
In a Tuesday hearing before Southern District of New York Bankruptcy
Judge Arthur J. Gonzalez, Akin Gump Strauss Hauer & Feld's
Daniel H. Golden withdrew his firm's request for a $1 million retainer
after it met opposition from the U.S. Trustee's Office and Verizon
Communications Inc., another creditor in the chapter 11 case. Judge
Gonzalez's subsequently approved Akin Gump as counsel to the creditors'
committee. The U.S. Trustee's Office had argued that adequate measures
existed to ensure the payment of lawyer's fees, and thereby rejected the
request for retainer. An Aug. 13 order dictated that lawyers in the
WorldCom bankruptcy are entitled to receive 80 percent of their fees and
all of their expenses on a monthly basis with the rest paid pursuant to
application to be made every 120 days. Verizon, whose contracts with
WorldCom are critical to the long-distance carrier's continuing
operations, said that granting Akin Gump's retainer request would
undermine the superior claim granted by the court to Verizon and other
utilities providing critical services. However, Akin Gump did file a
response to the U.S. Trustee on Monday, arguing that the sheer magnitude
of the WorldCom bankruptcy meant that the 20 percent 'holdback,' subject
to periodic applications, could be as much as $800,000 a month, adding
that since WorldCom brings in $30 billion in annual revenue, the $1
million retainer would not strain the debtor's operations or
reorganization efforts. Golden admitted that it was unusual for the
creditors' committee counsel to receive a retainer in a chapter 11
proceeding, but pointed out the vast scope and complexity of WorldCom's
bankruptcy.
Global Crossing's Chairman Pledges $25 Million Toward Retirement
Plan Losses
Gary Winnick, chairman of Global Crossing Ltd., yesterday pledged to
contribute $25 million to make up for retirement plan losses sustained
by thousands of its employees in the wake of its bankruptcy filing,
The Wall Street Journal reported. Winnick's offer was immediately
dismissed as being far less than needed by several lawmakers and
employees involved in class-action suits over its alleged mishandling of
employees' 401(k) funds. However, the offer is the first time that a
senior executive in the telecom industry has volunteered to compensate
those hurt by the company's decline in stock prices. 'This sets a high
moral bar, so I do think some other executives will take the cue and do
it,' said James Cox, a law professor at Duke University. Winnick himself
faces several lawsuits and a government inquiry into whether he
improperly sold $124 million of shares last year. Reportedly, his offer
is said to have little impact on the Securities and Exchange
Commission's and Justice Department's continuing investigations.
Additionally, a congressional committee produced evidence of e-mail
messages and other memoranda that implies that Wiinick was aware of the
company's deteriorating financial condition, leading to its stock price
drop.
U.S. Court Confirms 360networks Reorganization Plan
The U.S. Bankruptcy Court for the Southern District of New York has
confirmed 360networks Inc.'s reorganization plan, completing the final
step in the company's plan to emerge from bankruptcy protection in the
United States and creditor protection in Canada, Dow Jones reported. In
a news release, the company noted that 100 percent of its senior lenders
and 94 percent of its unsecured U.S. creditors have approved the plan,
which has also received Canadian court approval. 360networks said it
expects to emerge from bankruptcy by the end of this month. The company
offers telecommunications services and network infrastructure in North
America to telecommunications and data communications companies.
Buffalo Color Corp. Files for Chapter 11 Protection
Buffalo Color Corp. has filed for chapter 11 protection with the U.S.
Bankruptcy Court in Western District of New York, reported Buffalo
Business First. 'The company has had problems with severely
under-funded pension funds for its hourly and salaried workers and
pensioners, as dictated by IRS regulations,” the company said, but
added that the under-funding will not jeopardize pension benefits for
retirees. The bankruptcy action was filed following discussions with the
federal Pension Benefit Guaranty Corp., expected to be Buffalo Color's
largest creditor. The company said it does not expect its Buffalo
operations to be affected during the bankruptcy period and expects the
bankruptcy court to approve employee wages, salaries and insurance
benefits.
Panaco Can Use Cash Collateral Through Adjourned Hearing
A bankruptcy court extended Panaco Inc.'s interim authority to use the
cash collateral of a secured creditor to pay operating expenses and
preserve the value of its assets while it reorganizes under chapter 11,
according to a court order, reported Dow Jones. A hearing to consider
final approval of the cash use had been set for Thursday before the U.S.
Bankruptcy Court in Houston. That hearing has been adjourned until Oct.
10, the newswire reported.
As a result, U.S. Bankruptcy Judge Letitia Z. Clark signed the fourth
interim order Thursday that allows the company to use Foothill Capital
Corp.'s cash collateral under terms of budget through the final hearing,
Dow Jones reported. The order was entered on Panaco's docket on Monday.
When the company filed for chapter 11 on July 16, it owed Foothill
Capital Corp. roughly $38.6 million plus fees and expenses under a
pre-petition credit agreement. That pact is secured by a first-priority
lien on most of Panaco's oil and gas properties, which constitute the
lender's collateral, court papers said. Judge Clark's initial interim
cash collateral order from July 18 granted Foothill replacement liens on
Panaco's assets, the newswire reported.
Adelphia Executives Plead Not Guilty to Conspiracy Charges
Five former Adelphia Communications Corp. executives, including three
members of the Rigas family, which controlled the cable television firm,
pleaded not guilty yesterday to federal conspiracy charges that they
robbed the company of $252 million and hid more than $2 billion in
loans, The Washington Post reported. Former Adelphia chairman
John J. Rigas entered his plea along with his sons Timothy and Michael
and two former Adelphia executives, additionally pleading not guilty to
charges of conspiring to commit securities and bank fraud. The five men
charged are to be tried together, but the indictment handed down by the
federal grand jury on Sept. 23 focuses on the activities of John and
Timothy Rigas, with the other executives playing lesser roles. If
convicted, each defendant could face prison sentences ranging from 15-20
years.
Trinidad Airline Could Face Bankruptcy
The president of BWIA airline said that if the Caribbean carrier does
not cut costs it could go bankrupt within a month, according to the
Associated Press. To avoid bankruptcy, the Trinidad-based airline must
strike an agreement with its 2,300 employees to save $310,000 a month in
employee costs, BWIA President Conrad Aleong said Tuesday. 'If we don't
get the concessions from the employees by Oct. 31, then we go into the
hands of the creditors,' Aleong said. The 62-year-old airline has become
the latest airline to see a drastic drop in the number of passengers
following the Sept. 11 attacks, and the company lost $9 million in the
first half of 2002. The airline said it may drop some of its 22
destinations to reduce expenses.
Missouri Mayor Files for Bankruptcy
A southwest Missouri mayor facing federal fraud charges is now seeking
bankruptcy protection, according to the Associated Press. Strafford
Mayor Alan Baker and his wife filed for chapter 7 protection U.S.
Bankruptcy Court in Springfield. Baker pled innocent to a seven-count
indictment, stating that he sought funds for an investment program in
Greene County—funds that authorities allege he took for his own
use. According to court documents, Baker has about $110,000 in assets
and more than $238,000 in liabilities.
Bankruptcy Trustee Named in Napster Proceeding
Hobey Truesdell, a restructuring expert who oversaw the liquidation of
Drexel Burnham Lambert, was named the trustee in the Napster bankruptcy
on Tuesday, reported Reuters. The company last week fetched an estimated
$11 million bid from an undisclosed bidder, people close to the
company's bankruptcy proceeding said. Truesdell told Reuters on Tuesday
he would take the next few days to become familiar with the bankruptcy
case.
Are CEOs Worth Their Salaries? (The Washington
Post)
The skyrocketing salaries of corporate tycoons have sparked a heated
debate over how to compensate executives at America's largest companies.
But the real concern, according to Intel Corp. Chairman Andrew S. Grove,
should not be how executives are paid, but how much. To read the entire
article, go to
href='http://www.washingtonpost.com/wp-dyn/articles/A29673-2002Oct1.html'
target='window2'>http://www.washingtonpost.com/wp-dyn/articles/A29673-2002Oct1.html.
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