Corporate Crime

Not Quite Beyond Petroleum

For the past eight years, the oil giant formerly known as British Petroleum has tried to convince the world that its initials stand for “Beyond Petroleum.” An announcement just issued by the U.S. Environmental Protection Agency may suggest that the real meaning of BP is Brazen Polluter.

The EPA revealed that BP Products North America will pay nearly $180 million to settle charges that it has failed to comply with a 2001 consent decree under which it was supposed to implement strict controls on benzene and benzene-tainted waste generated by the company’s vast oil refining complex in Texas City, Texas, located south of Houston. Since the 1920s, benzene has been known to cause cancer.

Among BP’s self-proclaimed corporate values is to be “environmentally responsible with the aspiration of ‘no damage to the environment’” and to ensure that “no one is subject to unnecessary risk while working for the group.” Somehow, that message did not seem to make its way to BP’s operation in Texas City, which has a dismal performance record.

The benzene problem in Texas City was supposed to be addressed as part of the $650 million agreement BP reached in January 2001 with the EPA and the Justice Department covering eight refineries around the country. Yet environmental officials in Texas later found that benzene emissions at the plant remained high. BP refused to accept that finding and tried to stonewall the state, which later imposed a fine of $225,000.

In March 2005 a huge explosion (photo) at the refinery killed 15 workers and injured more than 170. The blast blew a hole in a benzene storage tank, contaminating the air so seriously that safety investigators could not enter the site for a week after the incident.

BP was later cited for egregious safety violations and paid a record fine of $21.4 million. Subsequently, a blue-ribbon panel chaired by former secretary of state James Baker III found that BP had failed to spend enough money on safety and failed to take other steps that could have prevented the disaster in Texas City. Still later, the company paid a $50 million fine as part of a plea agreement on related criminal charges.

In an apparent effort to repair its image, BP has tried to associate itself with positive environmental initiatives. The company was, for instance, one of the primary sponsors of the big Good Jobs/Green Jobs conference held in Washington earlier this month. Yet as long as BP operates dirty facilities such as the Texas City refinery, the company’s sunburst logo, its purported earth-friendly values and its claim of going beyond petroleum will be nothing more than blatant greenwashing.

Another Crooked Philanthropist?

A recent article in the Wall Street Journal discussed the ways a person can enhance his or her profile on Google by creating positive material that will displace unflattering references from the top of the search results. R. Allen Stanford, who has just been accused by the U.S. Securities and Exchange Commission of engaging in a “massive, ongoing fraud,” seems to have done something similar in the management of his public image.

Until word got out recently that federal authorities were combing through records at the Houston offices of his Stanford Financial Group operation, Stanford (center in photo) had successfully cultivated his image as a flamboyant Caribbean-based financier, a leading promoter in the world of cricket and an active philanthropist. He began referring to himself as Sir Allen after being knighted by the government of Antigua.

While investors were most interested in the spectacular yields his firm provided on so-called certificates of deposit (which were actually more exotic investments), Stanford seemed to work hardest in his efforts on behalf of St. Jude Children’s Research Hospital in Memphis and his Stanford 20/20 cricket tournaments. He brought his interests in philanthropy and sports together in 2007, when Stanford Financial took over the primary sponsorship of a PGA golf tournament benefitting the children’s cancer hospital. In 2007 the event became known as the Stanford St. Jude Championship.

Until this month, Stanford’s public record in news databases such as Nexis was dominated by articles concerning his charitable and sporting side activities. A little digging, however, unearthed what Stanford may have been trying to suppress: a series of unflattering articles in the late 1990s and early 2000s about his efforts to block legislation in Congress to crack down on offshore money laundering, especially in the Caribbean, where Stanford’s offshore bank, Stanford International Bank, is based.

In June 1999 Shelley Emling of Cox News Service wrote a story suggesting that Stanford was involved in weakening money laundering regulations in Antigua, where he had taken up residence. An article by David Ivanovich published on July 16, 2000 in the Houston Chronicle provided more details on Stanford’s role in strengthening Antigua’s bank secrecy practices, which were a source of frustration for U.S. officials trying to prevent money laundering.

In 2002 Stanford was in the news again after Public Citizen published a report listing Stanford Financial Group as a major provider of soft money contributions to promote the campaign against new U.S. money laundering proposed during the Clinton Administration. The report found that major recipients of the contributions included 527 groups affiliated with Senator Thomas Daschle and Democratic Caucus Chairman Martin Frost.

The Center for Responsive Politics points out that Stanford continued to invest in the political process even after the money laundering controversy died down. The group calculates that Stanford Financial’s PAC and the firm’s employees have given $2.4 million to federal candidates since 1989, and the firm has spent $4.8 million on federal lobbying efforts during the past decades.

It is difficult to know if these contributions helped Stanford thwart earlier investigations of his money management practices. One also wonders how many other possible business crooks are out there deflecting attention from their misdeeds by wrapping themselves in heartwarming activities such as fundraising on behalf of pediatric cancer victims. It is unfortunate that worthy endeavors such as St. Jude have to depend on wealthy supporters who may have much less noble ulterior motives.

The Banality of Corporate Evil

Our culture worships spunky small businesses and entrepreneurship. Stewart Parnell epitomized that ideal and was living the good life in Lynchburg, Virginia until last month, when his Peanut Corporation of America (PCA) was linked to one of the biggest salmonella outbreaks—at least eight deaths and more than 500 illnesses—ever to occur in the United States.

According to federal officials, PCA knowingly shipped contaminated peanuts as well as peanut butter and paste on numerous occasions, including 32 truckloads meant for the school lunch program. PCA also provided tainted raw materials for many large food processors, which have issued a cascade of product recalls. PCA is now the subject of a criminal investigation, and this week Parnell (photo) was compelled to appear at a Congressional hearing, where he grim-facedly invoked the Fifth Amendment and declined to answer questions.

He had reason to look grim. The House Energy and Commerce Committee released several e-mail messages sent by Parnell, including one in which he told his plant manager to make shipments (his exact words were “let’s turn them loose”) despite some test results showing evidence of salmonella. In another he complained that those problematic results were “costing us huge $$$$$.”

This was also a week when the chief executives of the country’s largest financial institutions were called before Congress and pelted with questions about bonuses paid out amid the massive federal bailout of the industry. But these days everyone expects executives of large corporations to be reprobates.

The Parnell situation is more chilling. He is the head of a privately held company with annual revenues of only about $25 million, which makes it a small business by contemporary standards. PCA had almost no public profile until last month, and Parnell’s only previous time in the national spotlight (though a much dimmer one) was in 2005, when Bush Administration Agriculture Secretary Mike Johanns appointed him to the Peanut Standards Board. (Parnell was just ousted from the panel by the USDA, which also announced that it is seeking to debar PCA from doing business with the federal government.)

According to the Atlanta Journal-Constitution, PCA was built by Parnell’s father, Hugh Parnell, as an outgrowth of his ice cream sandwich business. The company later got caught up in the takeover wave that swept through the small world of peanut processing. The Journal-Constitution reports that PCA was sold in 1995 to Morven Partners, the vehicle set up by billionaire investor John Kluge to take over various nut companies such as Jimbo’s Jumbos.

Jimbo’s, by the way, was mentioned in one of the e-mails released this week by the House. In it Parnell said: “We need to find out somehow what our competition (JIMBOS) is doing [about salmonella] and at the very least mimic their policy.”

Stewart Parnell and his brother Hugh Brian Parnell, the Journal-Constitution goes on to report, became management consultants for Morven until the late 1990s, when Stewart repurchased PCA.

Hugh Brian Parnell told reporters that work and family occupy his brother Stewart’s time. “He doesn’t drink, smoke or socialize,” Huge was quoted as saying. “He’s a family man. You never see him without a grandchild around.” The Associated Press quotes a neighbor of Stewart’s as saying: “He’s always been an upstanding, generous person and a pillar of the community.” Parnell and PCA didn’t have a much of a presence in the business community in Lynchburg, where the company has its modest headquarters. “This episode is the first time I’ve heard of them,” the president of the city’s chamber of commerce was quoted as saying.

Even less is known about Parnell’s associate David Royster III, who reportedly financed the acquisitions that allowed PCA to reach its current size. Royster is one of the younger members of a family that operates a variety of apparently respectable businesses in Shelby, North Carolina.

The apparent fact that supposed pillars of the community can engage in outrageously reckless business practices shows that there is sometimes a fine line between the aggressive pursuit of profit and behavior that can legitimately be called evil. Those who would venerate entrepreneurship should keep in mind that it can also have a dark side.

Merger of Miscreants

Monday may be remembered as the day when American big business announced some 50,000 layoffs, but one large company seemed to take a step toward growth. Pharmaceutical giant Pfizer unveiled plans that day to acquire its smaller competitor Wyeth in a stock and cash deal estimated at $68 billion. Pfizer crowed that the merger would create “the world’s premier biopharmaceutical company.”

While the deal may grow Pfizer’s revenues, it’s unclear who will benefit. The combined workforce of the two companies will be slashed by nearly 20,000 jobs. This will continue a policy of downsizing pursued by Pfizer CEO Jeffrey Kindler (photo) since he came to the giant drug firm from McDonald’s, of all places, in 2006.

Although Pfizer claims that the merged company will be better positioned to “respond more quickly and effectively to meet changing health care needs,” it is doubtful that patients will gain much from the creation of the mega-corporation. Pfizer has been feasting on the profits generated by Lipitor, but the company’s patent rights to the cholesterol drug expire in 2011 and there is nothing major in its pipeline to replace it. Even the Wall Street Journal editorial page sees the Wyeth acquisition as a sign of the “decline of innovation” in the drug industry.

Rather than developing new breakthrough products, companies like Pfizer seem mostly preoccupied with their legal issues. Kindler’s background, after all, is in litigation rather than science or even finance. Apart from patent issues, he has had to contend with the company’s regulatory problems. In fact, while everyone was focused on the merger, Pfizer announced that it had agreed to pay $2.3 billion (a record amount) to settle federal charges in connection with its off-label marketing of the now-withdrawn painkiller Bextra. The revelation was buried in a long press release announcing the company’s fourth-quarter financial results.

Bextra is not Pfizer’s only controversy. In October, for example, the New York Times published a story alleging that the company had manipulated the publication of scientific research to bolster the use of its epilepsy treatment Neurtonin for other disorders while suppressing research that didn’t support those uses. In 2006 the company was accused of testing an unapproved drug on children in Nigeria.

Pfizer’s bride-to-be Wyeth (formerly known as American Home Products) also has a record that is far from unblemished. The summary of legal proceedings in the company’s last annual financial report goes on for 14 pages. Most of the lawsuits are product liability cases involving hormone therapy, childhood vaccines, the anti-depressant Effexor, the contraceptive Norplant and, most importantly, the combination diet drug known as fen-phen, which was withdrawn from the market more than a decade ago after reports that its use was linked to possibly fatal heart valve damage. The findings unleashed a wave of tens of thousands of lawsuits against the company, including a case in Texas in which a jury awarded a single plaintiff more than $1 billion in damages. The company set up a $3.75 billion fund as part of the attempted resolution of a national class action case. Another $1.3 billion was added to the fund in 2006. Many plaintiffs opted out of the class and negotiated individual settlements with the company.

Big mergers are often justified with the claim that the combination will enhance product innovation. The main synergy likely to emerge from the marriage of Pfizer and Wyeth will be in its litigation department.

Citigroup (1998-2009) R.I.P.

Citigroup was born illegitimate and, having recently become a ward of the federal government, is now in the process of being dismembered. It’s amazing what a difference a decade makes. In April 1998 financial wheeler dealer Sandy Weill (photo) defied federal laws preventing marriages among banks, brokerage houses and insurance companies and pushed through a then-astounding $70 billion merger between his Travelers Group and commercial banking giant Citicorp. Weill won his bet that Glass-Steagall restrictions would fall, and he created what was then the world’s largest financial institution.

The deal was a desperate attempt to achieve the 1990s dream of the financial supermarket—institutions that would meet the public’s every monetary need, from checking accounts and business loans to mutual funds, homeowners insurance and credit cards. It was also a reach for supposed greatness by Weill and his Citicorp counterpart John Reed. As Business Week put it at the time: “In addition to chutzpah, Reed, 59, and Weill, 65, are propelled by their shared desire to go out in a blaze of glory.”

“Glory” is not exactly the way to describe the subsequent ten years of controversy, scandal and unwise investment and lending practices. Weill and Reed, each with the title of co-chief executives, bickered openly with each other. The company’s private banking operation was caught up in a money laundering investigation. Its credit card operations had to pay $45 million to settle lawsuits charging that consumers were improperly charged late fees. The bank was accused of enabling some of Enron’s accounting fraud. It was also embroiled in the WorldCom accounting scandal and had to pay $2.65 billion to settle lawsuits brought by investors in the failed telecommunications company.

But one of the worst moves was the decision in 2000 to acquire Associates First Capital, a pioneer in the subprime lending market that would later help to weaken the entire banking system. The acquisition, like the creation of Citigroup itself, was part of the mindset of trying to cover all corners of the financial services industry and of pumping up business even when transactions were excessively risky. The company touted plans to clean up the disreputable subprime business, but even that was a sham. According to the Wall Street Journal (7/18/02), branch offices were notified ahead of time when undercover “mystery shoppers” were being sent in to investigate loan origination practices.

Chuck Prince, who was named CEO in 2003, tried to clean up Citigroup in part by selling off pieces of the supermarket such as the Travelers life insurance business. Ultimately, though, Prince himself was disposed of as well. Yet the leviathan’s problems continued. Now his successor, Vikram Pandit, is taking a similar approach of lopping off parts of the company in the vain hope this will do the trick.

The just-announced decision to spin off the Smith Barney brokerage business into a joint venture with Morgan Stanley will bring in a much needed cash infusion of $2.7 billion. Yet it appears Citi is still living in a state of denial. It put out a press release headlined “Morgan Stanley and Citi to Form Industry-Leading Wealth Management Business Through Joint Venture.” What it really should have said is: “we screwed up royally, and despite getting tens of billions of taxpayer dollars, we’ve got to sell off some of our assets that are still worth something.” We’ll see how long the bravado continues as the company is forced to cut off more of its many limbs.

Satyam’s Fraudulent “Maquiladora of the Mind”

It was only a few years ago that a group of offshore outsourcing companies based in India seemed poised to take over a large portion of the U.S. economy. Business propagandists insisted that work ranging from low-level data input to skilled professional work such as financial analysis could be done faster and much cheaper by workers hunched over computer terminals in cities such as Bangalore. The New York Times once described one of these offshoring companies as “a maquiladora of the mind.”

Among the most aggressive of the Indian firms was Satyam Computer Services Ltd., which signed up blue-chip clients such as Ford Motor, Merrill Lynch, Texas Instruments and Yahoo. In a 2004 report I wrote for the U.S. high-tech workers organization WashTech, I found that Satyam was also among the offshoring companies that were doing work for state government agencies. It was hired, for example, as a subcontractor by the U.S. company Healthaxis to develop a system for handling applications for medical insurance services provided by the Washington State Health Care Authority. As it turned out, Healthaxis’s contract was terminated, allegedly because of late delivery and poor quality in the work done by Satyam.

The Washington State fiasco may have been an early omen of things to come. Satyam has just admitted that for years it cooked its books and engaged in widespread financial wrongdoing. The revelation came in a letter sent to the company’s board of directors by Satyam founder and chairman B. Ramalinga Raju (photo), who simultaneously tendered his resignation.

Raju wrote that what started as “a marginal gap between actual operating profit and the one reflected in the books” eventually “attained unmanageable proportions” as the company grew. The fictitious cash balance grew to more than US$1 billion. “It was like riding a tiger,” Raju colorfully wrote, “not knowing how to get off without being eaten.”

While admitting that he engaged in very creative accounting, Raju insisted he did not personally benefit from the fraud, denying for instance that he had sold any of his shares in the company. I guess it is meant to be some consolation that among his sins Raju is not guilty of insider trading.

Apart from Raju, the party most on the hot seat is the company’s auditor, PriceWaterhouseCoopers, whose Indian unit gave Satyam’s financial reports a clean bill of health. The Satyam scandal is being called India’s Enron. It should probably also be called India’s Arthur Andersen as this seems to be another case in which an auditor was either oblivious to widespread accounting misconduct by one of its clients or complicit in it.

Some soul-searching is probably also in order for the many large U.S. corporations that have not hesitated to take jobs away from American workers and ship the work off to Indian companies such as Satyam. The revelation that much of the work has been going to a crooked company is all the more galling.

Wanted: The Big Fish

In its waning days, the Bush Administration’s Environmental Protection Agency wants us to think that it is a serious crime-fighting organization. The agency’s enforcement division recently announced plans to “enlist the public in tracking down fugitives accused of violating environmental laws and evading arrest.” The innovation is a web page called EPA Fugitives, an online version of the wanted posters traditionally displayed in post offices.

There’s nothing wrong with such an initiative, but the two dozen culprits featured on the site are all decidedly small fish. Some are charged with serious offenses such as the dumping of hazardous wastes, while others are accused of less than monumental crimes such as illegally importing automobiles that don’t meet emissions standards or “aiding and abetting false entries into an Oil Record Book” of a ship.

Where is the agency’s zeal for highlighting the environmental crimes of large corporations? It’s been greatly diminished amid a general downplaying of enforcement activity. Last year the Environmental Integrity Project put out a report showing a sharp decline in enforcement efforts during the Bush Administration. “The bad news here is that it now costs less to pollute,” EIP Director Eric Schaeffer said at the time.

This is not to say that the EPA has let large corporations entirely off the hook. In fact, just this week the agency announced a settlement with Exxon Mobil under which the oil giant will pay $6.1 million in civil penalties for violating the terms of a 2005 consent decree concerning air pollution caused by the company’s refineries in Texas, California and Louisiana.

It apparently takes truly brazen actions such as those of Exxon to trigger real action by the EPA against a big company (though a $6 million fine is not much of a hardship for a company currently earning about $5 billion a month). If you look at the archive of the agency’s press releases on enforcement actions, the offending parties are most often small firms and individuals.

Perhaps the Obama Administration’s EPA should consider a new web page of its own: a rogue’s gallery of the large corporations that are doing the most to pollute the environment and exacerbate the climate crisis.

Siemens’s $1.3 Billion Slap on the Wrist

The German electronics and engineering giant Siemens, embroiled for the past two years in a massive international bribery scandal, has reached settlements with U.S. and German prosecutors. The company will pay $450 million to the U.S. Justice Department to resolve criminal charges under the Foreign Corrupt Practices Act (FCPA) and another $350 million to the Securities and Exchange Commission to settle related accounting violations. The total payments of $800 million are by far the most any company has paid in an FCPA case. Siemens also made a deal with German prosecutors involving a payment of about $540 million.

Siemens’ s total payout of $1.3 billion is huge in relation to the usual puny penalties imposed on even the most egregious corporate malefactors, but it is actually a bargain for the company. With annual revenues of more than $100 billion and profits of more than $5 billion, it can absorb the penalties without much difficulty.

Most significant is the fact that, by making deals with the prosecutors, Siemens avoided a guilty plea or verdict that would have disqualified it from continuing to do business with lucrative customers such as the United States government. According to the FedSpending website, Siemens has been awarded between $250 million and $350 million in federal contracts annually during the past few years, much of it from the Department of Homeland Security. According to its most recent 20-F filing with the SEC, Siemens derives about one-fifth of its total revenues from government and civilian customers in the United States.

While it is good for prosecutors to get companies to disgorge larger amounts of their ill-gotten gains, there is little evidence that monetary fines that are still in the realm of the affordable for large corporations can serve as an effective deterrent against future wrongdoing. Until the penalties threaten the continued existence of the company, they can be seen as nothing more than a cost of doing business aggressively.

In the case of Siemens, that wrongdoing was said to include the payment of more than $1 billion in bribes, taken from slush funds and sometimes transported in suitcases, to government officials in countries ranging from Argentina and Venezuela to Russia, China and Vietnam. It was also said to have paid kickbacks to the former government of Saddam Hussein in Iraq to secure business under the United Nations Oil for Food program.

How thoughtful it was for prosecutors to make sure a company such as this can continue to do work funded by taxpayer dollars. Whatever the feds take in penalties will soon be earned back in contracts. In a country where street criminals still face harsh sentences, large corporations continue to be treated with kid gloves.

Rescuing the Villain in the Citigroup Bailout

Treasury Secretary Henry Paulson has once again shown his willingness to take speedy action to rescue his friends in the financial world while allowing industrials such as the Big Three automakers to twist in the wind. The safety net for Citigroup that Treasury, the Federal Reserve and the FDIC announced last night represents the latest reversal in the ever-changing bailout “plan.”

Less than two weeks after announcing he had given up on the idea of purchasing toxic assets from banks in favor of capital infusions, Paulson is now saying that Treasury and the FDIC will “provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion” of mortgage-backed loans and securities. Given the way those securities have been falling in value, that possibility is far from remote. Citi graciously agreed to absorb the first $29 billion in losses, but taxpayers will probably be on the hook for much more.

In addition, Treasury is giving Citi another fix of $20 billion in capital. Paulson is driving a slightly harder bargain than in the past round of infusions, getting Citi to pay a dividend of 8 percent, up from 5 percent in the previous deals. Citi will also comply with “enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.” The latter is perhaps the most hopeful aspect of this new bailout, in that some homeowners may benefit.

Yet it is still amazing to see the federal government give essentially a blank check to Citi while the automakers are in limbo. The Big Three have a lot of mistakes to answer for, but they don’t compare to Citi’s checkered history. Throughout its history, the company has made reckless decisions that weakened the financial system and necessitated its own rescue. As early as the financial panic of 1837, what was then called City Bank had to be bailed out by tycoon John Jacob Astor. In the early 20^th Century, the firm, then the main bank of the Rockefellers and Standard Oil, was one of the first commercial banks to make a big move into securities. This paved the way for the excesses of the 1920s and the ensuing stock market crash.

During the 1970s, First National City Bank was a major instigator of lending to third-world countries, which later backfired on the big banks. That and other forms of forms of questionable lending weakened Citi’s financial condition, prompting it to solicit a big capital infusion from Saudi prince Al-Waleed bin Talal in 1991. Pursuing a replay of the 1920s, Citi merged in 1998 with insurance and securities giant Travelers Corp. and began acting more like an investment bank than a commercial one.

Over the past decade, Citi led the way in another boomerang situation: promoting subprime lending to low-income borrowers. In 2000 Citi spent $31 billion to purchase Associates First Capital, one of the more aggressive predatory lenders responsible for the wave of untenable mortgages that are now poisoning the financial system.

All this doesn’t include other scandals involving money laundering and collusion with the likes of Enron and WorldCom. In the latter two cases alone, Citi had to pay some $5 billion to settle investor lawsuits. Citi’s finances weakened to the point late last year that it had to get another Middle Eastern shot in the arm—a $7.5 billion investment by the government of Abu Dhabi.

And here we go again with another rescue—this time by a benefactor with the deepest pockets of all. Paulson would have us believe that Citi is a financial damsel in distress that must be saved for the good of the country. In fact, the company is more like a Snidely Whiplash villain who periodically lies down on the railroad track pretending to be a victim in order to get rescued by gullible Dudley Do-Rights. Who knows what mischief Citi will get into with its latest haul.

Bailed Out or Posting Bail?

While we wait to see whether the revolt against the Big Bailout survives, we can take some comfort in reports that numerous financial institutions are being investigated by the FBI and other law enforcement agencies for possible criminal violations in the practices that led the country to the current crisis.

The latest parties to find themselves on the hot seat are Fannie Mae and Freddie Mac, which yesterday revealed that they had received subpoenas from a federal grand jury in New York. According to a tally by Business Week, more than two dozen companies with roles in the financial mess have been investigated in the past year. It is heartening to think that more formerly high-flying Wall Streeters will be subjected to perp walks outside federal courthouses, as happened to two Bear Stearns hedge fund managers back in June (photo).

If the feds are aggressive about these investigations, we may learn that the corruption in the financial sector goes far beyond floating some overly risky securities.

Take the case of Wachovia, whose banking operations were just forced into the arms of Citigroup after its customers began to lose faith in the North Carolina institution. Wachovia’s problems were not just its portfolio of faltering mortgage-backed securities. Over the past year, it has been embroiled in a series of extraordinary scandals.

* In April 2008 Wachovia, accused by federal regulators of failing to take action against fraudulent telemarketers it knew were using its facilities to steal millions of dollars from unsuspecting victims, agreed to pay a fine of $10 million, contribute $9 million to consumer education programs and make up to $125 million in restitution to victims.

* That same month, the Wall Street Journal reported that Wachovia was being investigated as part of a federal investigation of Mexican and Colombian money-transfer companies believed to be involved in the money laundering for drug traffickers.

* In July there was a report on the Dow Jones Newswire that the Brazilian unit of Wachovia Securities (not part of the sales to Citigroup) was being investigated for aiding wealthy individuals commit tax evasion.

* In August Wachovia, following the lead of several other big financial institutions, agreed to buy back near $9 billion in auction-rate securities from investors who charged that they were misled into purchasing the volatile instruments.

And all this is apart from the Wachovia Securities broker in Ohio who, apparently on his own initiative, bilked millions of dollars from customers through fraudulent stock and real estate transactions. He was sentenced to four years in prison and ordered to pay more than $9 million in restitution.

Wachovia may be particularly unlucky that its alleged transgressions got discovered, but there is no reason to believe it is an isolated miscreant. Many of us have long suspected that fraud and corruption are rampant in the financial world. The pressures of the current crisis may finally expose the true extent of the rot.