No End in Sight for Scandals

As Ebbers pleads his innocence, a financial timebomb is ticking underneath Ericsson's HQ

March 4, 2004

2 Min Read
No End in Sight for Scandals

What is it about the telecom industry and financial shenanigans? In the U.S., the column inches devoted to the WorldCom Inc. accounting scandal are mounting up, following the guilty pleas of the former CFO and the charges levied against former CEO Bernie Ebbers (see Sullivan to Testify Against Ebbers)

Ebbers has denied the charges against him. His trial date is set for November 9, and he remains a free man until then -- though he cannot leave the U.S. under the terms of his $10 million bail.

But while the WorldCom saga has been rumbling on for a couple of years now, so has an ongoing probe into payments worth hundreds of millions of dollars made to consultants by LM Ericsson (Nasdaq: ERICY).

The Swedish vendor has been the subject of a tax investigation since late 2001 regarding the payments, believed to be worth about 2.5 billion Swedish crowns (about $330 million at today's exchange rate) made to agents and consultants in Switzerland in 1998 and 1999.

The Swiss tax authorities are investigating whether these payments could be constituted as bribes or be part of a money laundering scheme, but no evidence has been uncovered so far. Last year they raided the homes and offices of an attorney who had worked for Ericsson and a former Ericsson executive.

Now the probe by Swedish investigators into whether Ericsson's financial reporting for that period could constitute tax evasion has helped compel the resignation of the vendor's chief auditor, Carl-Eric Bolin of PricewaterhouseCoopers (see Ericsson Auditor Quits). Bolin, who had been auditor for more than 10 years, told Swedish newspaper Dagens Nyheter that he had stepped down from the position because of personal reasons but that the ongoing investigation was a contributing factor.

Ericsson is not commenting on the issue, as the investigation is still underway.

The Swedish company has had other trust issues to deal with in the past 18 months (see Cops Arrest Vendor Spies). And in Finland, national operator TeliaSonera AB (Nasdaq: TLSN) saw a number of its executives hauled away by the cops in late 2002 (see Sonera Slammed Up).

But that's not all. Another ongoing case in Europe surrounds the acquisition by Vodafone Group plc (NYSE: VOD) of German company Mannesmann AG in late 2000 for a staggering $180 billion. Six former Mannesmann officials are on trial regarding payments made as a result of the aggressive takeover by the mobile giant.

The men face allegations of breach of trust over payments worth €57 million to Mannesmann managers after the board of the German company caved into pressure from Vodafone to approve the acquisition. Prosecutors allege the payments were improper payoffs, while the defendents claim they were fairly rewarded for the performance of the German company.

Given all these court cases and investigations, how oddly apt is this headline from yesterday: Crook Named CEO of the Year?

— Ray Le Maistre, International Editor, Boardwatch

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