Jurors Refuse To Convict "Dummy" Executives

A common defense of top corporate criminals is to claim ingnorance of what is going on by those they control and direct, yet we shareholders pay them millions to watch the store. Now, according to and article in the New York Times, it appears the the jury hearing the case against a top Cendant executive has bought that line, hook, line and stinker:

Link: The New York Times > Business > Floyd Norris: Chief Executive Was Paid Millions, and He Never Noticed the Fraud?.

January 7, 2005 FLOYD NORRIS

Chief Executive Was Paid Millions, and He Never Noticed the Fraud?

The dummy defense worked, and the era of the former chief executive who remembers doing virtually nothing to earn his millions is upon us.
As chief executive of CUC International, Walter A. Forbes presided over a company whose books told lies for more than a decade. When the fraud was uncovered in 1998, after CUC had merged into the Cendant Corporation, it was the largest accounting fraud in American history.

This week, after a trial that lasted seven months and deliberations that lasted another month, a federal court jury convicted CUC's No. 2 executive, E. Kirk Shelton. But it was unable to reach a verdict on Mr. Forbes.

That there was a fraud is not in question. For many years, CUC inflated its revenues and hid expenses. "The defense of Walter Forbes is that he didn't know about it," said Brendan Sullivan, his lawyer, in closing arguments. He blamed it all on Cosmo Corigliano, the former chief financial officer and the prosecution's chief witness. Mr. Corigliano testified that he briefed Mr. Forbes using "cheat sheets" that showed how the revenues and profits were being inflated, but Mr. Forbes denied that. Mr. Sullivan branded Mr. Corigliano a "serial liar" and a "con man."

Mr. Forbes said he saw no need to pay attention to what was happening inside the company. He worked on "the strategy vision part, talking to key clients, being the outside voice of the company," he testified. "I think I was much more valuable to shareholders doing that than being in day-to-day operations."

You do not see many active chief executives who admit to being uninvolved in - and even uninterested in - day-to-day operations, but that appears to be the preferred defense for those whose companies turn out to be huge frauds. This trial shows such a defense can work, at least to persuade some jurors that underlings mount frauds while the bosses ponder the big picture and rely on the accountants.

Such a defense is expected at the trial of Richard M. Scrushy, the former chief executive of HealthSouth, where jury selection is under way. Mr. Scrushy's lawyers face the larger hurdle that a succession of chief financial officers, not just one, is expected to testify against him.

Bernard J. Ebbers, the former chief executive of WorldCom, is expected to mount a similar defense, as will Jeffrey K. Skilling and Kenneth L. Lay, the former chief executives of Enron. When Mr. Skilling testified before Congress after Enron failed, his mantra was "I am not an accountant." That testimony so infuriated Congress that it put into the Sarbanes-Oxley law a provision requiring chief executives to certify their company's financial statements.

Officials of the Securities and Exchange Commission used to complain privately that it was difficult to get the Justice Department to bring criminal charges in accounting fraud cases. Many United States attorney offices lacked expertise in accounting and feared that such a case would mean a lengthy trial that would leave jurors baffled.

Enron changed that, but a string of acquittals or hung juries in the pending chief executive cases could make prosecutors reluctant to pursue new cases.

In Enron, WorldCom and HealthSouth, chief financial officers eventually agreed to plead guilty, usually after insisting they had done nothing wrong. Chief executives tend to not leave paper trails of involvement with fraud, so the financial officers' testimony can be critical. But their previous denials make it easy to brand them as liars.

If bosses walk while their subordinates go to jail, it will confirm the wisdom expressed to Max Bialystock, the not-so-honest boss in the "The Producers," the Tony Award-winning Broadway show: "It's good to be the king."

Finally Directors Paying For Fraud

It's about time that directors be forced to contribute to settling securities fraud charges. While I have no comment on the adequacy here, it is notable that not all the insurance proceeds were exhausted, yet the directors contributed. This usually means that the insurance company had defenses to paying such as the fraud was intentional, or the insurance was procured with false information. Nevertheless, this is good precedent.

Link: WSJ.com - WorldCom's Ex-Directors Pony Up.

WorldCom's Ex-Directors Pony Up Agreement in Principle To Pay Out Personal Funds Creates Liability Precedent By JONATHAN WEIL Staff Reporter of THE WALL STREET JOURNAL January 6, 2005; Page A3

In an unusual legal move, 10 former outside directors for the former WorldCom Inc. have agreed in principle to pay $54 million -- including $18 million out of their own pockets -- to settle their portion of a class-action lawsuit brought by bondholders and shareholders in the wake of the telecommunications company's massive accounting scandal, according to people familiar with the matter.

The remaining $36 million would be paid by the directors' liability insurers, these people said. Under the accord, the $18 million to be paid by the former directors represents about 20% of their combined personal net worth, excluding their primary residences, retirement accounts and certain joint marital assets. Some of the former directors would pay more than others, though the amounts that will be apportioned to each haven't yet been determined.

The formal agreement is expected to be signed and presented for approval to a federal district judge in Manhattan as early as today. The suit accused the former directors of a variety of securities-law violations, including approving misleading statements about WorldCom's financial condition that they allegedly should have known to be false.

The tentative accord promises to expand the potential liability for corporate directors whose companies commit accounting fraud on their watch. The sheer size of the pact would be unprecedented for a case of this nature. None of the 10 former directors was a direct participant in the accounting machinations of the WorldCom fraud, which totaled $11 billion, and all suffered large losses as a result of the company's collapse. WorldCom emerged from Chapter 11 bankruptcy protection last year and has changed its name to MCI. An MCI spokesman declined to comment; the company today has an entirely different board of directors.

The move comes less than two weeks before jury selection is set to begin in the trial of Bernard Ebbers, WorldCom's former chief executive. Mr. Ebbers is charged with securities fraud, conspiracy and causing the company to make false filings with securities regulators. He could be sentenced to more than 25 years in jail, if convicted.

Although the recent wave of corporate scandals has shown that many companies' boards missed signs of wrongdoing, outside corporate directors have been among the most difficult defendants for private litigants and regulators to target in accounting-fraud litigation. Directors can face liability in securities-fraud cases for oversight failures if their dereliction of duty is both severe and demonstrable. Historically, however, such cases rarely have been successful.

"This is clearly unprecedented and sends a message to directors that their own personal wealth is at risk if they're not diligent in their jobs," said Lynn Turner, research director at proxy advisor Glass-Lewis & Co. in Broomfield, Colo., and a former Securities and Exchange Commission chief accountant. "In the past, directors' personal wealth has not been at risk when they failed in their obligation to investors who elected them. Now, if you don't get the job done, it appears you may very well pay."

To date, the SEC hasn't brought any disciplinary actions against WorldCom's former outside directors. Illustrating the difficulty of bringing such cases, the SEC's enforcement division only rarely has filed civil-fraud charges against individual outside directors in connection with oversight failures in accounting-fraud cases.

For instance, the SEC hasn't brought disciplinary actions against any of Enron Corp.'s former outside directors. Companies whose directors have been sued by the SEC over similar allegations include Ahold NV, Chancellor Corp. and Heartland Advisors Inc.

The latest WorldCom settlement includes all but two of WorldCom's former outside directors: Bert C. Roberts Jr. and Francesco Galesi, who remain defendants in the lawsuit. The lawsuit's lead plaintiff is the New York State Common Retirement Fund. Settlement talks with Messrs. Galesi and Roberts are continuing, a person familiar with the matter said. Lawyers for the two men couldn't be reached for comment last night.

The 10 settling former outside directors are: James C. Allen, a longtime telecom-industry executive; Judith Areen, a former dean of Georgetown Law School; Carl J. Aycock, a former motel-industry executive; Max E. Bobbitt, a longtime telecom consultant and executive; Clifford L. Alexander, president of consulting firm Alexander & Associates Inc.; Stiles A. Kellett Jr., chairman of Kellett Investment Corp.; Gordon S. Macklin, former president of the National Association of Securities Dealers; John A. Porter, a former WorldCom chairman and vice chairman; Lawrence C. Tucker, a partner at Brown Brothers Harriman; and the estate of the late John W. Sidgmore, who took over as WorldCom's chief executive in April 2002 shortly before the company's accounting problems surfaced publicly.

The 10 former directors are being represented by Paul Curnin, an attorney at Simpson Thacher & Bartlett LLP in New York. Mr. Curnin declined to comment yesterday.

The $36 million to be paid by their insurers wouldn't fully tap out the company's director-liability insurance coverage, according to a person familiar with the matter. However, regardless of how much the insurers would pay, New York State Comptroller Alan Hevesi, the New York retirement fund's sole trustee, has insisted that the directors each personally pay a significant portion of the settlement proceeds.

In their most-recent amended complaint, the New York fund wrote that "WorldCom's board of directors was utterly derelict in fulfilling the most basic functions of a true board." A spokesman for Mr. Hevesi declined to comment last night.

Under the agreement in principle, the settling directors are expected to deny wrongdoing and state that they are settling the case to eliminate the uncertainties and expense of further litigation.

The planned settlement comes about two months after U.S. District Judge Denise Cote approved Citigroup Inc.'s $2.58 billion settlement in the same lawsuit, in connection with the bank's role as one of WorldCom's leading bond underwriters. The plaintiffs also are seeking billions of dollars in damages from 17 other bond underwriters, including J.P. Morgan Chase & Co., Deutsche Bank AG and Bank of America Corp. A trial on that portion of the case is set to begin next month. The class action includes investors that purchased WorldCom securities from April 1999 to June 2002.

Meanwhile, legal maneuvering is starting to escalate ahead of Mr. Ebbers's trial. In court filings, Mr. Ebbers's attorney, Reid Weingarten, is seeking, among other things, to have Judge Barbara Jones bar jurors from hearing about the company's $70 billion earnings restatement for 2000 and 2001.

"The sheer magnitude of the restatement ... would inflame the jury's passions," Mr. Weingarten wrote in a filing. "The bulk of the adjustments in the restatement have nothing to do with the fraud."

Jury selection is scheduled to begin Jan. 19 in U.S. District Court in New York, and the trial is expected to start around Jan. 24.

In motions with the court, Mr. Ebbers's attorney has also sought to keep the jury from seeing transcripts of conference calls made in 2000 and 2001, in which Mr. Ebbers commented about earnings to Wall Street analysts. Mr. Weingarten said the transcripts are incomplete and contain inaccuracies.

Mr. Ebbers, 63 years old, is expected to argue that he was never an accounting expert, and that he relied in good faith on those who were, including former Chief Financial Officer Scott Sullivan, who has pleaded guilty to fraud.

Mr. Sullivan, who initially insisted that he was innocent, is now the prosecution's star witness. Facing a possible lengthy sentence if convicted, Mr. Sullivan last year cut a deal with prosecutors and agreed to testify against Mr. Ebbers.

Mr. Sullivan is expected to claim that Mr. Ebbers goaded underlings into falsifying financial results in order to meet unrealistic earnings targets. The defense is expected to argue that Mr. Sullivan's testimony is not credible because he has a vested interest in implicating Mr. Ebbers to save himself.

--Shawn Young and Almar Latour contributed to this article.

Write to Jonathan Weil at jonathan.weil@wsj.com1

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Fannie Mae Chiefs May Walk Away With Millions

Suggesting that crime does pay, the architects of the humongous fraud at Fannie Mae are claiming their rights to millions of compensation wrongfully paid to them as a result to their fraud. Three cheers for the Washington Post for taking them on in the following commentary:

Link: washingtonpost.com: Accountability Pays.

washingtonpost.com Accountability Pays

Monday, January 3, 2005; Page A12
"BY MY EARLY retirement, I have held myself accountable." So said Franklin D. Raines when he stepped down almost two weeks ago as chairman and chief executive of mortgage giant Fannie Mae. Mr. Raines leaves the company facing a criminal investigation by the Justice Department and a civil investigation by the Securities and Exchange Commission, whose chief accountant last month told the government-sponsored company that it had improperly twisted accounting rules. As a result, Fannie Mae might have to report $9 billion in previously unrecorded losses, wiping out 38 percent of its profits since 2001. There is also a continuing investigation by its chief regulator, the Office of Federal Housing Enterprise Oversight, which accused the company of "pervasive and willful" accounting violations and has declared it "significantly undercapitalized."
A bit of accountability -- indeed, even a dollop of contrition -- might seem to be in order for Mr. Raines and Fannie Mae's longtime chief financial officer, J. Timothy Howard, who resigned the same day. In his statement the SEC's top accountant said that the company, rather than adhering to accounting rules with which it disagreed, "internally developed its own unique methodology." In much the same way, Messrs. Raines and Howard seem to have developed their own unique notion of accountability, in which being accountable means not having to relinquish a single penny that they might be entitled to under their platinum parachute severance packages.%

It's not as if they weren't compensated lavishly during their time at Fannie Mae -- in part as a result of the accounting rules that regulators say they misapplied. Mr. Raines's compensation in 2003 totaled about $20 million, including $3 million in stock options; Mr. Howard received $7.6 million, including $2.3 million in options. Mr. Raines's early retirement and Mr. Howard's resignation then entitled them to equally lavish severance packages: Mr. Raines gets a yearly pension of at least $1.3 million; Mr. Howard's pension would be $433,000. Moreover, Mr. Raines, his wife and dependent children get free health insurance for life, and the company pays the premiums on a life insurance policy for Mr. Raines worth at least $2.5 million.

But that may not be all. Mr. Howard says that he's actually entitled to be paid through June 2007, which would give him $1.7 million more, not to mention continuing medical and dental coverage. Meanwhile, Mr. Raines contends that his retirement isn't effective for six months, which would cost him in the short term (his pension is more generous than his base salary) but bump up his pension by $23,000 a year in the long term. Moreover, Mr. Raines says he may be entitled to additional stock options. This may be more tactical angling for legal advantage than an effort to grab even more money, but that doesn't make it any more attractive.

The Office of Federal Housing Enterprise Oversight says it's reviewing the departure packages, though current rules may not give it the clout to undo such payments. If so, that, too, should be among the changes lawmakers consider in beefing up regulation of this financial giant.

© 2005 The Washington Post Company

Corporate Fraud 2004 In Review

NewJersey.com summarizes this year in corporate fraud with the following article by Lewis Krauskopf. Are we really becoming numb to it all?

Link: North Jersey Media Group providing local news, sports & classifieds for Northern New Jersey!.

Corporate fraud continued in 2004 Sunday, January 2, 2005

By LEWIS KRAUSKOPF
STAFF WRITER

The insurance industry is rocked by kickback accusations. A mortgage giant is found to have cooked its books. And, of course, a domestic diva is convicted of obstructing justice and lying to the government.
In New Jersey, a drug maker agrees to pay nearly $350 million to resolve allegations of giving kickbacks and other inducements to keep its allergy drug in favor with HMOs. And a Bergen County-based bank coughs up $5 million to resolve a federal money-laundering probe.
In all, 2004 made its share of corporate malfeasance headlines. Across the country and in New Jersey, industries, companies large and small, and individuals all found themselves under the government's microscope. More accounting shenanigans emerged, as did other schemes to defraud the government. Some companies paid big fines, and some executives ended up behind bars.
The drumbeat of corporate scandal that began several years ago with frauds at Enron and WorldCom continued last year, stretching into health care and other arenas.
But at this point, the public may be becoming numb to the fact that the business section often reads like the crime pages, said Steven Chanenson, associate professor of law at Villanova University.

"The really earth-shattering effects of Enron and WorldCom are unlikely to be repeated because we've been through that experience as a society," Chanenson said.

Indeed, several corporate-crime watchers say scandal is cyclical, with frauds often uncovered during tough economic times, as people are more willing to turn a blind eye when everyone is prospering.

Still, as new companies joined the ranks of the fraudulent or criminal, it became harder to say that bad acts were being committed by only a few, said Robert Weissman, editor of the Multinational Monitor, a Washington-based monthly that looks at corporate behavior.

"There's more and more evidence that the problems are pervasive," Weissman said. "It's no longer remotely plausible that it's confined to individual bad actors. The problems are really systemic and systematic."

When it comes to systemic or systematic corporate problems, the name at the center was again Eliot Spitzer. After shaking up stock research on Wall Street and the practices of mutual fund companies, the New York attorney general trained his eye on the insurance industry.

Spitzer targeted insurance brokers and the payments they received from insurers to promote their coverage. The probe already has had fallout: Jeffrey Greenberg, the chairman and CEO of the nation's largest insurance broker, Marsh & McLennan, was ousted from his job in October.

While Spitzer again was the big story in corporate fraud investigations, the federal government is developing a more coordinated approach, said Chanenson, himself a former federal prosecutor. "What you begin to see is a more developed approach from the government, particularly from the federal government, which had to scramble somewhat to get a national strategy in place," he said.

Boards under scrutiny

Chanenson said federal prosecutors are coordinating efforts more, and that they are more likely to bring cases in pieces - to move more quickly - as opposed to waiting to develop one master case that ties everything together.

Another legacy of the Enron-era scandals is a greater scrutiny on oversight by boards of directors, who represent shareholders, said Richard Ottaway, associate dean for academic affairs at Fairleigh Dickinson University's college of business.

"The comfortable board member ... that sounds like retirement is over. These are working people," Ottaway said.

As scandals go, McLennan's Greenberg wasn't the only one to fall. Franklin Raines, chairman and CEO of Fannie Mae, was forced out last month under heavy government pressure once the mortgage giant was found to have violated accounting rules.

No scandal could top the one enveloping Martha Stewart, at least in terms of notoriety. The founder of Martha Stewart Omnimedia was found guilty in March of lying about a sale of stock she owned in a biotechnology company. Stewart began serving her five-month sentence in a minimum-security prison in West Virginia in October.

She could be followed to prison by other notorious former captains of industry. One, former Enron CEO Kenneth Lay, was indicted in July by a grand jury investigating the collapse of the former energy behemoth. In September, onetime star investment banker Frank Quattrone was sentenced to 18 months in prison for obstructing an investigation into allocations of hot technology stock offerings.

Companies with strong New Jersey ties also faced punishment for running afoul of the government. Several pharmaceutical houses doled out huge dollars.

Schering-Plough Corp. agreed to pay $345.5 million to resolve allegations in connection with a scheme to defraud Medicaid, including giving kickbacks to keep its onetime blockbuster allergy drug Claritin in favor with large HMOs. Pfizer Inc. paid $430 million to settle charges that its Warner Lambert unit illegally promoted Neurontin for "off-label" uses, while Bristol-Myers Squibb said it would pay $150 million to settle civil charges involving a massive earnings-management scheme. Bristol may also face criminal charges, as the U.S. Attorney's Office in Newark convened a grand jury last year to look into the case.

'Business plan fraud'

James Moorman, president and CEO of Taxpayers Against Fraud, said the settlements regarding allegations of pharmaceutical manufacturers bilking Medicare and Medicaid strike him as "business plan fraud."

"This is really the cream of American industry just feeling it's their God-given right just to steal" from Medicare and Medicaid, Moorman said.

Outside the pharmaceutical industry, employees of New Jersey companies that fell amid controversy faced the music in 2004. A former operations manager of Suprema Specialties of Paterson pleaded guilty in January along with three customers to creating fictitious sales. The sales allegedly inflated company revenue by millions of dollars at the defunct cheese company.

Three former officers of Medi-Hut Co., a small South Jersey pharmaceutical and medical device maker, were given prison sentences in November for falsely inflating its performance and obstructing an SEC investigation.

Elsewhere, Mahwah-based Hudson United Bank in March agreed to pay $5 million to settle charges it failed to monitor accounts for possible money laundering, leading to a government overhaul of its compliance program. In July, Knight Trading Group, the Jersey City-based matchmaker of buyers and sellers of Nasdaq stocks, reached a $79 million settlement with the SEC and NASD over its trading practices.

Federal investigations

Heading into 2005, pharmaceutical companies could make headlines again. Merck & Co., for example, faces federal investigations by the SEC and Department of Justice into the withdrawal of its Vioxx painkiller. Federal prosecutors in Philadelphia have also accused Medco Health Solutions of defrauding a federal employee health benefits program, and the case against the pharmacy benefits manager could go to trial this year.

Bankrupt telecommunications reseller Norvergence also faces a slew of federal probes, including investigations by the FBI and the IRS as well as at least 20 state attorneys general. The Federal Trade Commission has accused the Newark-based company of defrauding its 11,000 customers.

And any day now, Connecticut jurors could return with their verdict in the accounting fraud trial of former Cendant Corp. Chairman Walter Forbes and former Vice Chairman E. Kirk Shelton.

In 2005, protecting investors and maintaining confidence in the financial markets remains a priority, said Michael Chagares, a former federal prosecutor in Newark and a Hackensack attorney with the firm Cole Schotz. Chagares predicts that prosecutors will continue to focus on corporate accounting and corporate governance cases.

Despite the number of high-profile cases, Weissman, the editor of the corporate watchdog publication, said weak federal enforcement in other areas has opened the door for schemes. He said federal enforcement has lapsed in areas such as the environment, occupational safety and antitrust scrutiny.

"If the enforcement agencies don't do their job, the wrongdoing continues, and we just don't know about it," Weissman said.

E-mail: krauskopf@northjersey.com

Copyright © 2005 North Jersey Media Group Inc.

The SEC Caving To Politics?

According to a distrubing article in the WAll Street Journal, the SEC may be falling prey to political influence, leaving investors, like the environment, to fend for themselves.

Link: WSJ.com - Political Capital.

Business Groups Are Seeking Ouster Of SEC's Donaldson December 14, 2004; Page A4 Top business groups in Washington have launched a quiet campaign to persuade the White House to dump Securities and Exchange Commission Chairman William Donaldson. The groups argue that the post-Enron crackdown on big business has gone too far, and now threatens to hurt the economy by discouraging companies from taking risks. Their hope is to replace Mr. Donaldson with a business executive who has a reputation for integrity, but also understands the problems that the corporate crackdown has caused for executives and their boards of directors. Mr. Donaldson, they argue, doesn't. The Business Roundtable, the U.S. Chamber of Commerce, the National Association of Wholesaler-Distributors and other business groups took an unusually active role in this year's election, encouraging their members to reach out to employees and help register and turn out new voters likely to be sympathetic to the president. Bush campaign manager Ken Mehlman has given them generous credit for helping to re-elect President Bush.

In return, these groups are now looking for some easing of the harsher regulatory and enforcement climate that has grown up in the wake of the corporate scandals. The effort isn't discussed much in public, and probably won't get any attention at this week's economic summit. That's because polls show corporate executives still rank low in public esteem, and any effort to ease up on regulation or enforcement against them is likely to be politically unpopular.

But in private, the lobbyists have been pressing their case that easing up on SEC enforcement and regulation is necessary to keep the economy healthy. And they believe the White House has heard their message.

Mr. Donaldson was appointed by Mr. Bush two years ago and has worked to restore the reputation of an agency that often appeared asleep at the switch during an outbreak of corporate accounting scandals. In the push for tougher regulatory and enforcement measures, however, he has generally found himself teamed up with the two Democratic commissioners on the SEC -- Harvey Goldschmid and Roel Campos -- and opposed by the two Republicans -- Paul Atkins and Cynthia Glassman -- in the minority.

As reported in these pages yesterday, Mr. Donaldson broke the mold last week when he sided with the Republicans in opposing a staff recommendation to fine Global Crossing Ltd. Chairman Gary Winnick $1 million for failing to disclose a series of transactions that artificially boosted revenue. Mr. Donaldson argued Mr. Winnick shouldn't be held responsible because he was a nonexecutive chairman of the company. The SEC staff argued Mr. Winnick was up to his elbows in running the company, regardless of his title.

Some SEC watchers wonder whether the unusual vote was an effort by the chairman to save his job. Mr. Donaldson, who has indicated to colleagues he'd like to stay on for another two years, wasn't available to comment. But Matthew Well of the SEC said that "the assertion that any commissioner would vote for political reasons is ridiculous." As for the campaign to oust Mr. Donaldson, Mr. Well said, "Chairman Donaldson is going to stay around as long as he feels he is being effective."

Thomas Donohue, the feisty president of the U.S. Chamber of Commerce, insists he has "no idea about a campaign to get rid of Donaldson." But he has been the most public of the lobbyists in calling for change at the SEC. The Chamber has even sued the agency over its new rules requiring independent directors at mutual-fund companies.

Other business groups are less public in their criticism, but no less concerned. Mr. Atkins, one of the Republican commissioners, also has pushed the case against Mr. Donaldson at the White House, arguing that the chairman is less friendly to free financial markets than was his Democratic predecessor, Arthur Levitt. Mr. Atkins is said to be interested in the top job himself, although business lobbyists argue the job should go to someone with more business experience.

On hold for now is any effort to revise the Sarbanes-Oxley law, which beefed up the SEC, created the Public Company Accounting Oversight Board, and imposed new restrictions on companies. Any effort to revise that law in the current political climate would be opening a can of worms, and could lead to changes that the business community opposes.

But changing attitudes at the SEC could go a long way to satisfy the business groups' concerns. Mr. Donohue is particularly bothered by efforts by the SEC, and by New York Attorney General Eliot Spitzer, to force large settlements out of companies by threatening charges. Mr. Donaldson is a former chief executive himself, and a longtime friend of the Bush family. As a result, everyone involved with the effort seems eager to avoid any personal embarrassment to him. But don't be surprised to see Mr. Donaldson moving on sometime early next year.

Write to Alan Murray at Alan.Murray@wsj.com1

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