Ethics Newsline®

NEW YORK
Citigroup, the world’s biggest financial services firm, last week agreed to pay $2 billion to settle charges that it helped hide Enron’s massive accounting fraud, deceiving investors who lost billions of dollars when the company went bankrupt.

Citigroup and a long list of other finance and legal firms are accused of helping Enron construct and fund the off-the-book partnerships that concealed the company’s corruption and bogus bookkeeping.

When Enron declared bankruptcy in December 2001, thousands of workers lost their jobs and investors lost their funds, sparking a series of lawsuits consolidated into a massive class-action case.

Last week’s $2 billion offer by Citigroup would end the company’s exposure in that class-action claim. Citigroup made a similar $2.58 billion deal with WorldCom investors in 2004.

Citigroup said the settlement offer comes without an admission of any wrongdoing, reported the Associated Press.

The deal, which observers say may prod other firms into settling, still must be approved by Citigroup’s board of directors, a federal judge in Texas, and the board of regents of the University of California, which is the lead plaintiff in the class-action suit.

Two other banks — Lehman Brothers and Bank of America — already have settled similar Enron-related claims for $222.5 million and $69 million respectively, according to the Reuters news agency.

Firms still facing the class-action case include Barclays, Credit Suisse First Boston, Deutsche Bank, JP Morgan Chase, Merrill Lynch, Royal Bank of Canada, and the Royal Bank of Scotland.

BIRMINGHAM, Alabama
HealthSouth agreed last week to pay $100 million and institute a series of reforms to settle civil fraud charges filed by the U.S. Securities and Exchange Commission (SEC) after the company overstated earnings by $2.7 billion.

HealthSouth and former CEO Richard Scrushy were both named in the SEC suit, which covered alleged bookkeeping fraud that investigators say began in 1996, reported the Associated Press.

While the settlement will end the company’s exposure, Scrushy still will face civil charges following the resolution of his criminal trial, which is entered a thirteenth day of jury deliberations on Monday.

The settlement apportions the $100 million in five installments over two years. The company made a similar deal — $325 million over three years — with the Justice Department in January, noted the AP.

Under terms of the deal, HealthSouth also must continue cooperating with federal investigators and hire consultants to keep an eye on the company’s governance, internal behavior, and accounting practices.

A separate deal last week requires the firm to create an inspector general position, reported Bloomberg.

“This agreement is both a major milestone in HealthSouth’s recovery and a powerful symbol of the progress we have made as a company over the course of the last two years,” HealthSouth president and CEO Jay Grinney said in a statement

WASHINGTON
The Defense Department’s inspector general last week issued a report exploring the machinations behind an improper lease arrangement with aerospace giant Boeing — a deal that was derailed after evidence of fraud and ethics violations came to light.

The deal called for the Air Force to lease 100 Boeing 767 tanker aircraft, refitted to serve as refueling craft, at a cost of more than $23 billion — and was negotiated over a period of three years. The arrangement went sour after a handful of senators, including Sen. John McCain (R-Ariz.), questioned the deal’s cost.

Former Air Force official Darlene Druyun is serving nine months in prison after admitting that she helped Boeing design the deal while also negotiating to become an employee of the company. Senior Boeing official Michael Sears is serving four months for his involvement.

While the Pentagon painted the Boeing deal as Druyun’s doing alone, Defense Department Inspector General Joseph Schmitz said the deal was engineered by military officials, Boeing executives, and senior White House staff.

Among the findings: Boeing worked with Druyun to draft the legislation awarding the company the lucrative contract; former Air Force secretary James Roche blocked a legally required analysis of alternatives to the lease deal; and Roche and others wrongly testified to Congress that the deal was needed to replace rapidly deteriorating aircraft when those planes actually are usable until 2040.

Former undersecretary of Defense Edward “Pete” Aldridge, who left the Pentagon to serve on the board of Lockheed Martin, was also criticized for improper behavior. Schmitz said his team did not interview Aldridge because he would not respond to phone calls or certified letters, reported the Chicago Tribune.

While the Senate Armed Services Committee welcomed the inspector general’s report at a hearing last week, it also took issue with the report’s extensive redactions and key omissions, noted the Washington Post.

Committee chairman John Warner (R-Va.) expressed incredulity that the Schmitz had delegated all 88 investigative interviews to underlings and that the report included no comments from either Defense Secretary Donald Rumsfeld or his former deputy Paul Wolfowitz, who now heads the World Bank.

“Generally speaking, we interviewed them and we did not find anything relevant to report to tell the story about the 767,” Schmitz told Warner, according to the Tribune.

“You found nothing in your interviews with the secretary of defense and the deputy secretary of defense that was relevant to this report?” Warner disbelievingly asked, calling the scandal “the most significant defense procurement mismanagement in contemporary history.”

Sen. Carl Levin (Mich.), the committee’s top Democrat, also criticized the report for its extensive redactions, noting that Schmitz blacked out 45 sections dealing with White House involvement in the lease negotiations, as well as the names and emails dealing with lawmakers and others involved in the lease.

White House spokesman Scott McClellan last week said the passages were blacked out, even from the classified version available to senators in a secure room, because Schmitz does not have jurisdiction over the White House.

“They only have jurisdiction over their particular agency,” McClellan told the Tribune.

“There is no legal authority that would conceivably justify the redaction of this material from the report,” Levin warned at the hearing. “Critical gaps in this report have placed a cloud over it — indeed, over the inspector general’s office.”

WASHINGTON
Dealing a blow to advocates of states’ rights, the U.S. Supreme Court last week ruled that a federal law concerning interstate commerce trumps state laws protecting users of medical marijuana from prosecution.

The 6-to-3 ruling sided with the Bush administration, which claims that medical marijuana laws in 10 states threaten to undermine federal drug policy and the “war on terror” by creating hidden markets for illicit drugs.

The case before the court involved two California women, Diane Monson and Angel Raich, who use medically prescribed marijuana to control chronic and extremely painful diseases that they say have not responded to other treatments.

While the women use marijuana that is grown locally and given to them, never sold and never crossing state lines, the federal government claims the practice could tip from being a backyard plant or two to a full-blown crop distributed through underground markets.

“The likelihood that all such production … will precisely match the patients’ medical needs … seems remote, whereas the danger that excesses will satisfy some of the admittedly enormous demand for recreational use seems obvious,” Justice John Paul Stevens wrote for the court’s majority.

“Well-settled law controls our answer,” Stevens concluded, saying federal intervention “is a valid exercise of federal power, even as applied to the troubling facts of this case.”

Among the court’s six-member majority were two surprises, Anthony Kennedy and Antonin Scalia, who in the past have pushed the court’s rulings in favor of state rights.

One of their ideological colleagues, Justice Clarence Thomas, sharply dissented.

“Diane Monson and Angel Raich use marijuana that has never been bought or sold, that has never crossed state lines, and that has had no demonstrable effect on the national market for marijuana,” Thomas wrote. “If Congress can regulate this under the Commerce Clause, then it can regulate virtually anything, and the federal government is no longer one of limited and enumerated powers.”

Justice Sandra Day O’Connor agreed, issuing a dissent that chastised the court for failing to recognize states’ constitutional latitude.

“The states’ core police powers have always included authority to define criminal law and to protect the health, safety, and welfare of their citizens,” she said. “Whatever the wisdom of California’s experiment with medical marijuana, the federalism principles that have driven our Commerce Clause cases require that room for experiment be protected in this case.”

“The court’s definition of economic activity … threatens to sweep all of productive human activity into federal regulatory reach,” O’Connor wrote. “To draw the line wherever private activity affects the demand for market goods is to draw no line at all.”

Ten states — Alaska, California, Colorado, Hawaii, Maine, Montana, Nevada, Oregon, Vermont, and Washington — currently have laws allowing the use of medical marijuana when recommended by a physician, noted Reuters.

Press reports note that while last week’s ruling authorizes the federal government to go after patients using medical marijuana, it does not invalidate the existing state laws, which prohibit state authorities from prosecuting users.

WASHINGTON
The White House last week again faced accusations of watering down scientific findings to suit political goals, this time fending off criticism for altering global warming reports to downplay the research tying greenhouse gas emissions to global warming.

Dozens of such changes have been made to official reports by Philip Cooney, a lawyer with no scientific training, who is chief of staff for the White House Council on Environmental Quality.

Cooney moved into his job after more than 10 years with the American Petroleum Institute, the nation’s largest oil industry trade group, where he served as a lobbyist and worked to defeat legislation restricting heat-trapping gases, reported the New York Times.

The Times was the first to report on Cooney’s role in watering down language about global warming in official U.S. reports, copies of which were obtained by the Government Accountability Project, a nonprofit group that provides legal assistance for whistle-blowers.

The group is representing Rick Piltz, who resigned in March from the Bush administration’s Climate Change Science Program, which issued the documents edited by Cooney.

Last week, Piltz sent a memo to top officials warning that political interference with scientific findings was damaging morale and the integrity of research, according to the Times.

“Each administration has a policy position on climate change,” Piltz wrote. “But I have not seen a situation like the one that has developed under this administration during the past four years, in which politicization by the White House has fed back directly into the science program in such a way as to undermine the credibility and integrity of the program.”

Piltz’s memo follows similar warnings from the science community, which repeatedly has complained that the Bush administration is tampering with scientific findings to make them match policy goals.

The White House refused to let Cooney comment last week, saying he is “not a cleared spokesman,” but defended his alterations of the reports as part of the standard process of letting policymakers take a red pen to final documents.

White House spokesman Scott McClellan last week denied that Cooney had done anything improper in editing the reports’ language to make scientific findings of climate change seem less robust. “The reports are based on the best scientific knowledge that we have at this time,” McClellan insisted.

That view was echoed last month by Dr. Harlan L. Watson, the chief climate negotiator for the State Department, who told the BBC, “We are still not convinced of the need to move forward quite so quickly.”

The scientific academies of 11 countries, including those of the United States and Britain, last week released a joint letter contradicting the U.S. government’s official view. “The scientific understanding of climate change is now sufficiently clear to justify nations taking prompt action,” they warned.

Special to Newsline from Canadian correspondent Errol P. Mendes

TORONTO
In a survey of 114 Canadian CEOs, Canadian polling firm Ipsos-Reid has found that the country’s top business leaders regard stress, burnout, and related physical and mental health issues as the biggest drain on productivity at Canadian companies.

The survey, which was commissioned by a Canadian employee assistance firm, FGIworld, has found that the Canadian CEOs are worried also about the impact of stress-related health problems on their ability to pay for disability claims.

Most of the CEOs believe that their employees face more stress-related health risks than five years ago.

A representative of the firm asserted that these increasing stress-related health and productivity challenges are due to corporations asking their employees to do more with less in order to stay competitive.

RALEIGH, North Carolina
A teenager whose sister was raped and murdered by a man sentenced to death for the crime received a $5,000 college scholarship last week funded by death-row inmates who applaud his goal of becoming a police officer.

Zach Osborne was six years old when his little sister was killed by his mother’s boyfriend, reported the Associated Press. He is now a sophomore at East Carolina University.

Last week, Osborne was awarded a $5,000 scholarship funded by subscriptions to “Compassion,” a publication by death-row inmates who so far have funded seven scholarships worth about $27,000.

The funds are raised through subscriptions and donations to the “Compassion” publication, a positive-news-only project of the Roman Catholic Church’s peace and justice committee, according to the AP.

“We would like to support him in realizing his dream of becoming an officer of the law and finding a way to prevent future violence,” editor Dennis Skillicorn, wrote in the newsletter’s May issue from his cell on Missouri’s death row. “Our intent is genuine.”

From Harris Interactive:

“Most adults, regardless of party identification or religious affiliation, believe embryonic stem cell research should be allowed. Support has remained high over the past year as nearly three-quarters (74 percent) of U.S. adults believe stem cell research should be allowed today (73 percent in 2004).

“While support for stem cell research has remained steady overall, the number of Republicans and born-again Christians opposing stem cell research has risen over the past year and fewer are uncertain about their position on the issue.

“Today, one in four (25 percent) Republicans, compared to one in five (18 percent) one a year ago, believe that stem cell research should not be allowed. The proportion of Republicans who are unsure has declined to 15 percent, down from 21 percent in 2004. Three in ten (29 percent) born-again Christians, compared to two in ten (21 percent) just one year ago, believe that stem cell research should not be allowed….

“Other key findings from the survey include:

• “A majority (72 percent) of adults tend to agree that as long as the parents of the embryo give their permission, and the embryo would otherwise be destroyed, stem cell research should be allowed; this is unchanged from 2004.
• “Nearly two-thirds (65 percent) of adults tend to agree that if most scientists believe that stem cell research will greatly increase our ability to prevent or treat serious diseases we should trust them and let them do it; this is virtually unchanged from 2004 (67 percent)….
• “Majorities of adults continue to reject two arguments used by those who oppose stem cell research. Two in three (66 percent) tend to disagree that allowing any medical research using stem cells from human embryos should be forbidden because it is unethical and immoral, and 58 percent tend to disagree that using cells from human embryos for research comes too close to allowing scientists to play God….”

“The true danger is when liberty is nibbled away, for expedience and by parts.”

– Edmund Burke (Irish statesman and orator, 1729-1797)