Public confidence in chief executive officers (CEOs) and other corporate leaders sank to a new low in 2002 after a series of accounting scandals and financial scams capped a $5 trillion loss in market value and trashed the pensions and lifetime savings of millions of investors, workers and pensioners.

The 570 new SEC investigations opened up this year � more than any year of the previous decade � unearthed such a cornucopia of business improprieties that everyone had a hard time keeping up. First came Enron. Then WorldCom, followed by a trail of others � Adelphia, Global Crossing, Tyco, ImClone, Vivendi, etc.

In July, President Bush reacted to mounting concerns about a systemic contagion by going to Wall Street, where he announced a 10-point corporate responsibility plan, including the creation of a new corporate fraud task force. But the task force had no budget or staff, and was headed by deputy attorney general Larry Thompson who, it was soon discovered, had been a board member of Providian Financial Corporation, a credit card company that paid more than $400 million to settle allegations of consumer and securities fraud.

But this was not atypical of an administration that had made the corporate-government revolving door spin so fast it shredded ethical concerns like a Cuisinart. A few of the 40 or so members of the Bush Administration that had ties to Enron were beginning to sweat under Congressional scrutiny, including Army Secretary Thomas White, the former head of the division of Enron that ripped off California ratepayers. And Democrats were promising to make an election-year issue out of SEC investigations into both President Bush (who had been cleared of insider trading at Harken 11 years ago, while his father was President) and Vice President Cheney (who had instituted an aggressive stance on booking disputed revenue while CEO of Halliburton.)

But then Bush changed the topic, using his plans for war in Iraq as a fundamental distraction from these and other issues. Meanwhile, the administration was quietly scaling back increases to the SEC�s budget and shying away from a strong head for the new accounting oversight board.

By the end of the year, an already-overworked SEC staff was left reeling by the botched appointment of William Webster and the resignation of Harvey Pitt.

Below is a list of 10 different kinds of financial and accounting transgressions that dominated the 2002 corporate crime wave. The forms of fraud are so varied, the patterns so broad, and the players so many that the corruption can only be explained as a systemic problem. Thus, it is unlikely the Sarbanes-Oxley law, which only deals with accounting, can prevent another corporate crime wave. Yet after the U.S. mid-term elections, it is obvious that the only thing likely to stimulate another round of significant legislative reforms is another major scandal or a full-fledged market collapse.

Accounting conflicts-of-interest
After the collapse of Arthur Andersen, business pundits railed against accountants as the "short-order cooks of financial legerdemain" who had long lost their role as the independent conscience of corporations. Instead, they had become cozy insiders who happily looked the other way when the numbers did not add up, knowing that any criticism would jeopardize a business relationship that included lucrative consulting and other services.

Despite the passage of a major federal accounting reform law (Sarbanes-Oxley) and the industry�s attempt to reform itself by spinning off large consulting units, the Wall Street Journal reported in September that accounting firms were still reaping half of their revenue from nonauditing sources (down from three quarters).

Meanwhile, new proposed SEC rules still allow auditing firms to advise on a variety of other activities, including some tax services and litigation support.

Until there is an absolute ban on auditors performing non-auditing services, the audit will not be independent and investors will suffer. As accounting professor Don Moore of Carnegie Mellon University says, "Even the most honest auditors will continue to see the world in a biased way, and failures of auditor independence will continue."

Analyst conflicts-of-interest
In May, New York Attorney General Eliot Spitzer released incriminating e-mails which revealed that analysts at Merrill Lynch had been publicly touting stocks that they privately derided as "junk" and "crap."

This was standard practice at most big firms during the stock boom � brokers pushed the stocks of companies that bankers saw as lucrative clients, and companies gave their business to firms whose analysts rated their stocks favorably. According to independent analyst Martin Weiss, 47 of the 50 largest brokerage firms covering companies that went bankrupt in the first four months of 2002 continued to tell investors to buy or hold their shares even as the companies were filing for Chapter 11.

The most egregious example of the incestuous analyst�s back-scratching game was former Citigroup (Salomon Smith Barney) analyst Jack Grubman, who allegedly changed his rating on AT&T stock at the behest of his boss, Sandy Weill (who was seeking to persuade AT&T�s CEO, a Citigroup board member, to support Weill in an internal company fight). In exchange, Grubman wrote in an e-mail, Weill worked to get Grubman�s kids into a tony Manhattan pre-school.

Will a deal that state and federal regulators are trying to cut with the banks be enough to stop these conflicts? Probably not. As Business Week put it in an article about Citigroup in September, "it�s starting to look as though the very model of the financial conglomerate is fundamental flawed." And until those flaws are dealt with by structural reforms that fundamentally separate the analyst function from other banking services, the conflicts are likely to remain.

Frontloading Income
Enron made the practice of booking uncertain future revenues famous as "mark to market" accounting. But Enron was hardly alone.

In May, the Securities and Exchange Commission (SEC) opened an investigation into accounting practices at Halliburton, the oil services company formerly headed by Vice President Dick Cheney. Under Cheney, the company switched to a new aggressive method of accounting. When a big construction project, like a natural gas processing plant, went over budget, the company booked the over-budget charges as revenue under the assumption that the customer would pay later, ignoring possible disputes. All told, Halliburton reported more than $100 million in disputed revenue, misleading investors who were kept in the dark for a year.

What did the company�s accountants have to say about that? A promotional video for Arthur Anderson taped in 1996 resurfaced this year. In it, Cheney said he got "good advice, if you will, from their people based upon how we�re doing business and how we�re operating, over and above the, just sort of the normal by-the-books audit arrangement."

Improperly booking expenses
In July, WorldCom dropped a bombshell when it disclosed that it had improperly booked $3.8 billion in expenses as capital expenditures. A month later, the figure was more than $7 billion and before the year ended, bankruptcy investigator Richard Thornburgh had estimated that the company was able to inflate its earnings by as much as $9 billion.

A large part of the deception was accomplished by booking routine expenses (line use costs) as capital investments. By disguising its operating expenses as capital expenses, WorldCom was able to meet projected earnings, finance a rapid and opportunistic acquisition of numerous companies during the telecommunications sector bubble, and mislead millions of investors, who lost an estimated $140 billion when the deception was finally revealed.

Insider loans
In the race to compensate executives even more excessively, boards of directors discovered a new tool that did not have to be disclosed to shareholders: insider loans. According to the Corporate Library, 1,133 of the top 1,500 companies (roughly 75 percent) have now disclosed insider loans. The average loan was $5.5 million. Of an estimated $5 billion in insider loans, SEC records show that about $1 billion have been or will be forgiven.

WorldCom�s Bernie Ebbers got about $400 million in company loans. Adelphia�s Rigas family borrowed $263 million from the company. Tyco�s Dennis Kozlowski borrowed $120 million.

Although the Sarbanes-Oxley Act bans insider loans, corporate lobbyists are hard at work pressuring lawmakers and the SEC to weaken the law.

Insider
Trading
Trading on information not available to the general public is illegal. But that never seems to deter the greed of high-flying executives.

The big insider trading scandal of 2002 came at drug maker ImClone, where CEO Samuel Waksal and his family and friends sold company shares right before the company disclosed some bad news: the FDA was not going to examine its new cancer drug Erbitux.

The company drew further popular attention when it was discovered that Waksal friend Martha Stewart dumped 4,000 ImClone shares around the same time. Waksal has admitted he was guilty of insider trading, but Stewart, who is potentially facing both civil and criminal prosecution, is maintaining her innocence, although an assistant to her broker has agreed to testify against her.

Insider trading questions also surround President George W. Bush, who sold 212,140 shares of Harken stock on June 22, 1990, when he was a company director. A letter from the firm�s outside lawyer dated June 15, 1990 warned directors not to sell company stock if they had negative information about the company�s prospects. That letter showed up at the Securities and Exchange Commission on August 22, 1991 � one day after the SEC cleared Bush of insider trading charges.

IPO Spinning
One of the ways Wall Street banks attracted business was by offering rare and valuable initial public offerings (IPOs) to executives of client or prospective client companies, a process known as "spinning." For example, Citi�s Salomon Smith Barney investment-banking subsidiary gave telecom CEOs preferential access to shares of hot IPOs that could be flipped in hours or days at great profit. As a result, these already rich executives got even richer on IPOs while ordinary investors were shut out of the profitable IPO offerings. However, this process of awarding IPO shares for banking business is illegal, even if the prohibition is sparsely enforced.

In October, New York Attorney General Eliot Spitzer sued the officials at five telecom companies for $28 million in profits they made from shares of initial public offerings purchased through Salomon Smith Barney.

Massachusetts Secretary of State William Galvin has documented similar practices at Credit Suisse First Boston.

Overseas Bribery
The pressure from top level corporate management to "deliver the numbers" extended to multinationals� overseas operations.

Claims of corruption have arisen in a number of Enron-related projects in numerous countries, including India, Bolivia, Ghana and the Dominican Republic. (Foreign bribery is illegal under the Foreign Corrupt Practices Act.)

In July, Xerox reported "certain improper payments" totaling nearly $700,000 in 2000 from executives of its Indian subsidiary to government officials. That same month, Business Week reported that a Tyco subsidiary may have used illegal means to win a $200 million contract to build an industrial water-treatment facility in Venezuela.

But federal prosecutors say foreign bribery cases are notoriously difficult to win because they depend on foreign witnesses and access to documents held outside the United States.

In addition, a loophole in the law was opened in April, when U.S. District Court Judge David Hittner ruled in a case involving two executives of American Rice, Inc. that it is legal for an executive from a U.S. company to make payments to a foreign official to reduce the company�s tax burden or customs duties.

Round-tripping and
network capacity swapping
Under pressure to improve or meet projected earnings, energy trading companies discovered how to inflate revenue by fake trades known as "round-tripping," whereby one company sells energy to another company, which sells it back to the first company at the same price, allowing both companies to report a sale even though nothing was actually purchased.

Dynegy, CMS Energy and Reliant Resources have all admitted to "round-tripping." Another 150 companies are being investigated. Energy experts say 40 percent of all energy revenue for 2001 may have been overstated.

Telecom companies figured this trick out as well, swapping excess capacity on their fiber-optic networks to artificially boost revenue. Global Crossing and Qwest remain under investigation for swapping network capacity to falsely inflate revenue.

AOL Time Warner and Homestore.com traded online Internet advertising in a third variation on this theme. Both are also under investigation.

Special Purpose Entities
Enron made special-purpose entities (SPEs) famous, but big banks like Merrill Lynch, J.P. Morgan, Citigroup and others helped make them possible.

According to a lawsuit filed by shareholders, these and other banks structured or financed Enron�s off-the-books partnerships, which were used to hide debt and falsely inflate profits.

Merrill�s alleged involvement with Enron�s SPEs includes raising $390 million in private equity for LJM2 and investing $40 million of its own money in Zephyrus, both off-the-books partnerships; J.P. Morgan allegedly helped Enron line up $1 billion for a series of SPEs.

Additionally, "secret or disguised transactions by J.P. Morgan, Citigroup and CS First Boston also concealed billions of dollars of loans to Enron," the suit alleges.

Lee Drutman is communications director, and Charlie Cray is project director of the corporate reform campaign, at the Washington, D.C.-based Citizen Works.