Wall Street became further mired in litigation on Wednesday when a class action lawsuit was filed against the drugs company Merck, claiming it had overstated revenues by $4,6-billion over three years.
The action came as another beleaguered company, WorldCom, was offered a $5-billion lifeline by rival telecoms operator IDT. The response from WorldCom to the offer for its long-distance and local networks was lukewarm, even though the group is beset by allegations of a $3,8-billion fraud. ”We’ll consider any serious offer, but it is highly unlikely we would consider selling our core assets such as MCI or our local business. Certainly non-core assets like wireless resale are on the table,” a spokesperson said.
Richard Breedon, former chairperson of the United States’s Securities and Exchange Commission (SEC), was on Wednesday appointed ”monitor” to ensure that WorldCom complies with certain orders during investigation of the fraud allegation, including an undertaking not to shred documents.
On Tuesday CEO John Sidgmore, who took over the business two months ago, said he was optimistic that new lines of funding would be arranged after an earlier admission that the company had defaulted on $4,25-billion of loans. ”I won’t say there is no way we will end up in bankruptcy, right now we are working very hard to accomplish our goals without that.”
New York was the first state to sue the company on Tuesday.
Sidgmore said he hoped to draw a line between current and former management and added that it was unclear whether former CEO Bernie Ebbers was aware of the improper accounting. The erstwhile chief financial officer, Scott Sullivan, who has been blamed for the irregularities, was fired last week.
A submission to the SEC this week disclosed the names of the Arthur Andersen partners chiefly responsible for handling the WorldCom account. Mark Schoppet had been the audit engagement partner in 2000 and years prior, while Mel Dick became lead partner on the account last year. Both were questioned by Max Bobbitt, the chairperson of the WorldCom audit committee before last week’s announcement. WorldCom is extending its internal inquiry back to 1999.
The inquiry could lead to the record misstatement being further inflated.
On Tuesday the company said it would be delisted from the Nasdaq market on Friday, pending a possible appeal. Shares plunged another 90% to just six cents — at their peak they were worth $62. It also added that the WorldCom audit committee had asked accounting firm KPMG for help in a review of the company’s accounts for the past three years.
The $3,8-billion hole, uncovered during a routine audit, related to the first quarter of 2002 and the 2001 financial year only.
Federal investigators are said to be increasingly convinced that the improper accounting at WorldCom went beyond the evidence that has already emerged.
The SEC is taking a tough stance and chairperson Harvey Pitt said on US TV this week that ”criminal charges may be too good” for those responsible. He dismissed as ”wholly inadequate” an initial WorldCom report on the mismanagement.
The latest disclosures against WorldCom show that a whispering campaign against the disgraced telecoms giant is in full swing.
Next Monday the House financial services committee holds the first public hearing into the scandal. /
} US fears of world court exaggerated
‘ Andreas O’Shea
^ The launch of the International Criminal Court on Monday has a long pedigree. The desire for criminal justice in a global forum dates back as far as 1474 when the Holy Roman Empire set up an international tribunal to try Peter von Hagenbach for crimes against ”the laws of God and man”.
More recently, a move, enshrined in the Treaty of Versailles, 1919, to bring Germany’s Kaiser to international justice failed because The Netherlands refused to extradite him. World War II heralded a new era for international criminal justice with the Nuremberg and Tokyo trials. After the long interlude of the Cold War, the International Criminal Tribunals of former Yugoslavia and Rwanda broke the ice in 1993 and 1994 respectively.
It was in Rome in 1998 that the long-awaited treaty on an international criminal court was finally adopted. Setting the court apart from historical precedents would be its permanence and general application, potentially to any conflict anywhere in the world.
Much has been made of the United States’s refusal this week to ratify the treaty and its reluctance to continue with peace missions. How important is this?
US blessing would boost the standing of the court, but the nature of the founding treaty means that it will still be viable. The treaty is not one of economic cooperation requiring superpower support to be effective. It applies to individuals who have committed serious crimes against the interests of the international community as a whole.
The accused can come from anywhere. There may be practical difficulties in securing surrender if a suspect is on US soil, but an American citizen who commits an international crime in the territory of a member state could face trial.
The US is so worried about the court that it is prepared to stop its peacekeeping operations. It is concerned that the court’s prosecutor can initiate an investigation and prosecution against a US citizen alleged to have committed a crime on the territory of a member state, without any real control by, in particular, the United Nations Security Council.
Under the UN Charter, the Security Council has primary responsibility for international peace and security. Its power is limited to delaying the court’s proceedings, but only through a resolution that would require eight other voices apart from the US. The US believes its citizens may fall victim to a malicious prosecution. The stance is technically defensible, as the prosecutor will be independent of any sovereign state, and politically understandable given the frequent claims of wrongdoing against the US in situations such as Somalia, Iraq and Afghanistan, where it would not dream of prosecuting its own soldiers.
But the fear is exaggerated and indefensible in terms of entrenching the international rule of law. The court cannot be entirely credible when one sovereign state can veto the prosecution of its own subjects accused of atrocities.
If a US citizen was indicted it would only be for the most serious international crimes. The prosecutor could only proceed if there was evidence supporting the allegation, and with the authorisation and control of the Pre-Trial Chamber. The case could not proceed if the US were investigating or prosecuting the matter itself.
Judgement would come from three judges elected by at least two-thirds of the state parties on grounds of expertise, independence and integrity. An Appeals Chamber consisting of five judges has powers of review.
The US could not necessarily expect stronger guarantees if another state decided to try an American citizen arrested outside the US for crimes committed on its territory.
The US may be fighting shy, but a number of other significant players have thrown their full weight behind the court, including the United Kingdom, France, Canada, Germany, Italy and The Netherlands. South Africa ratified its founding treaty in November 2000.
Helping to avert major political challenges is the fact that it will have no jurisdiction over past atrocities, such as Pol Pot’s Cambodian genocide, Sierra Leone’s diamond war, apartheid or the attack on the World Trade Centre. It can deal only with crimes in its jurisdiction committed after July 1.
The International Criminal Court is the closest we have come to an effective global deterrent against assaults on human dignity by those who wield political and military power.
For any state counting itself a democracy to attempt to undermine it is a blow not only to the international rule of law, but shows contempt for democracy and accountability in international relations.
Professor Andreas O’Shea is director of the Centre for International Law and Transitional Justice at the University of Durban-Westville