The scheme was run by several of the highest executives in the company and involved numerous meetings throughout the world with foreign business executives. Thousands of written documents, bills and telephone calls were engendered.
Unbeknownst to Mick Andreas, who directed scheme, key conspirator Mark Whitacre was an informant for the FBI, wearing a wire and taping every meeting. While Whitacre was working undercover for the FBI, he was also embezzling $9 million from ADM.
The ADM scandal bears enormous relevancy for the Enron scandal. Although there was less loss to investors, millions ADM's customers were bilked by the price fixing, not to mention the cost to stockholders of both the fine and the lost business.
It is also pertinent to President Bush's plan to reform business practices in the wake of Enron and to the failure of so many reforms in the past.
Like Enron Corp., Archer Daniel Midland, ADM, was worldwide and well known. Its "Supermarket to the World" advertisements graced public television, its corn-based fuel ethanol was in the news and almost all the sweetener used in American soft drinks came from ADM.
There were other similarities as well. ADM, like Enron, had been built into its dominant position in the corn and soybean market by one man, Dwayne O. Andreas, who like Enron Chairman Kenneth Lay was a major political contributor and had hobnobbed with leading politicians like President Richard Nixon and Senate Majority Leader Bob Dole, R-Kan. It was a $25,000 check from Dwayne Andreas to Nixon's re-election campaign in 1972 that was traced to money used to payoff the Watergate burglars.
When the price fixing scheme was first uncovered in 1994, Andreas, as Lay has said, claimed he didn't know anything about it. Members of the board of directors said they too were in the dark.
It was a hard sell to FBI investigators that Andreas, who ran ADM with an iron hand, didn't know what his own son was doing or that the company's commitments to rig prices with major foreign companies could have been done without the knowledge of the chairman of the board and chief executive officer.
The company quickly pleaded guilty in 1996 to price fixing and was fined $100 million, at that time one of the biggest fines ever levied against a corporation. The plea had the effect of stopping the government from pursuing whether Andreas or the board secretly directed the plot. In effect, the investors paid the $100 million fine to stop the government investigation.
Whitacre's taped evidence was so compelling that Mick Andreas and the others couldn't escape conviction and the men did not incriminate higher ups. The three ADM officials went to trial and the case wasn't completed until 1999. The senior Andreas was never charged and retired.
Neither ADM nor Enron are unique. The last decade is strewn with examples where major, publicly held corporations are caught in wrongdoing, auditors have missed the problem and top executives have eluded responsibility -- E.F. Hutton, Brown & Williamson tobacco company and Arthur Andersen, the Enron auditor that was indicted Thursday on charges of obstruction of justice, to the mention a few. Andersen paid $110 million in May to settle securities fraud charges over its auditing of Sunbeam and another $7 million the next month to settle Securities and Exchange Commission charges over its auditing of Waste Management Corp.
There are two critical gaps in corporate governance that Bush said his plan would deal with. One is that the top executives cannot now be held responsible for its actions. The other is that the investor must be able to rely upon information the company provides about its corporate health, financial situation and prospects.
Bush's plan tinkers with the corporate disclosures, trying to beef up what a company must tell and the timeliness of the reports, but the major deception in the Enron case was that their auditor approved a plan to move the company's debt to outside partnerships so they didn't have to report them.
Bush offered a series of suggestions to make top executives more responsible for the company's actions, but some seemed perplexingly naïve. He suggested that the chief executive should not only sign the company's financial statements, but also sign a separate paper saying that they'd really read them and were sure they were true. Every Securities and Exchange Commission corporate filing, including several signed by Bush in his business days, say that the executives stood behind the figures. Does this mean that those signatures were meaningless?
Bush would like to bar executives from profiting through stock options from rising stock prices that relied on false or misleading financial information and to bar corporate executives from holding an executive position if it can be shown that they abused their position. Both of these ideas will require the SEC to get legislation, but the SEC can do that now through long court proceedings.
Ralph Estes, a former professor at American University in accountancy and one of the best-known experts on corporate governance calls the program "all smoke and mirrors."
"They're trying to look like they're doing something, but they don't want to anger those corporate contributors," Estes said.
He pointed out that for decades there have been periodic calls for corporate executives to take greater responsibility for misbehavior in their firms and for laws to force them to do so. But actually over the decade of the 1990s, the trend has been the other way. In 1995, the major accounting firms created a $12 million lobbying pool and won a suit that successfully reduced the amount of liability they faced in lawsuits stemming from a business failure where the accounting firm had done the audit.
Bush ran on a platform that he would reduce the amount of litigation and said his reform plan was designed to avoid further expansion of lawsuits.
Nevertheless, the practical discipline for many corporations has only been fear of lawsuits. Misleading financial information that causes a loss to investors can result in so-called "10B5" suits, the number of the section of the securities law protecting investors. The suits often alert the SEC to a violation.
The SEC has never had the enforcement resources to properly police the publicly held firms. The president's plan did not appear to include major funding increase for the SEC, but several Capital Hill plans did.
Industry fights any further government regulation, by pushing for self- regulation, but Estes scoffs at self-regulation: "When it comes down to self regulation or the bottom line, they would choose the bottom line."
Estes claims that the whole role of the boards of directors would have to be changed to be effective. He said that strong CEOs like Lay and Andreas packed their boards with people who would not interfere with how they ran the company. Being a board member should be a real job, where the board member is forced to take responsibility for how the company runs.
Estes said he felt Bush's and the congressional plans fell short on correcting a company's auditing function as well. He said it does not go far enough to separate the auditing from other accounting functions done by the same firm. Enron, like other major firms, retained Arthur Andersen as both an accountant and business service firm and the outside auditor.
"You cannot have real auditing as long as the firm being audited hires the auditor," Estes said.
He has worked with people in Congress on the idea of setting up a sort of national auditing board that would regulate the preparation of audited financial reports. The company would to the board and ask for its books to be audited. The board would choose the auditor and work with the company on the price depending upon the size of the audit and other factors.
The company would have to accept an audit firm from a listed of firms vetted by the government board.
"But nothing will happen now," Estes claims. "Congress and the president are too dependent on those corporate contributions." Some of President Bush's largest contributions in the presidential race came from Ken Lay.
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