FCC CHMN. GETS SPOT ON BUSH'S CORPORATE FRAUD TASK FORCE

FCC Chmn. Powell was appointed to serve on President Bush’s newly formed Corporate Fraud Task Force, which Bush described in speech to Wall St. as “financial crimes SWAT team.” Task force will be led by Deputy Attorney Gen. (AG) and will include many officials from Justice Dept., FBI and various U.S. Attorney offices. Powell will serve on branch of task force that focuses on specific functions along with Treasury secy., SEC chmn., Commodities Futures Trading Commission (CFTC) chmn., Federal Energy Regulatory Commission (FERC) chmn. FCC chmn. has permanent seat on task force, Presidential Executive Order said.

“There is a severe capital crisis putting a tremendous strain on the telecommunications industry,” Powell said in news release. “It is imperative to do everything possible to restore investor confidence in this critical sector of the American economy.” He said his recent visits with investors, analysts, credit rating services and telecom companies in N.Y. had helped give him “heightened appreciation for the vital role investor confidence plays in the successes or failures of companies in the telecom sector, particularly in the critical area of companies’ obtaining capital to finance operations and technological improvements.” Goals of Telecom Act can’t be achieved without effort by govt. and corporate leadership to restore investor confidence, Powell said.

In his speech Tues., Bush outlined several initiatives to battle corporate fraud, including: (1) Expansion of prison time for criminal, mail and wire fraud. (2) New powers for SEC, including the ability to freeze improper payments to CEOs. (3) $20 million funding increase for SEC. (4) End to practice of allowing corporate officers to receive loans from their companies.

Fallout from WorldCom scandal continued Tues. with Bush speech, which followed marathon hearing Mon. in House Financial Services Committee (CD July 9 p1). House and Senate Commerce committees are considering hearings on WorldCom scandal and how it relates to broader telecom and Internet markets and regulatory regimes. Staffer for House Commerce Committee ranking Democrat Dingell (Mich.) said Dingell was asking Committee Chmn. Tauzin (R-La.) to hold hearing on telecom competition in wake of WorldCom case. Staffer said Dingell believed that deregulatory push came with some pitfalls and had created “urge to merge” in companies such as WorldCom. Dingell is concerned about lack of competition in telecom sector, particularly in Internet backbone services such WorldCom’s UUNet, staffer said. Some have estimated WorldCom controls as much as 70% of Internet backbone. Dingell believes WorldCom situation puts govt. in “a precarious position” because it controls so much of Internet backbone, staffer said, adding that Dingell believed there should be more competition in Internet carrier business, which he said would occur through the Tauzin- Dingell bill (HR-1542). Senate Commerce Committee spokesman said Chmn. Hollings (D-S.C.) had asked staffers to put together hearing that would take “big picture” look at WorldCom scandal and its relation to telecom industry.

At hearing Mon., Salomon Smith Barney analyst Jack Grubman expressed frustration about downturn of telecom market and gave insight into his views on state of current telecom market. Members questioned Grubman about his ratings, including why hen had changed rating of AT&T just as Salomon was pursuing investment banking business with telecom giant for its wireless IPO. He also said Telecom Act of 1996 hadn’t lived up to economic expectations. “I'm not happy the Telecom Act of 1996 didn’t materialize the way a lot of people in this room thought it would,” Grubman said. “It doesn’t make me feel particularly good.” He said he favored the business models of cable companies and described regional Bells as “vulnerable.”

Rep. Tiberi (R-O.) asked about Grubman’s Nov. 1999 reversal on AT&T, stock he hadn’t favored since 1995. Tiberi asked whether Salomon’s efforts to win investment banking work on AT&T’s $10.6 billion IPO for wireless division had influenced his rating of AT&T. Grubman defended his decision on AT&T, saying he had started researching company after it purchased 2 large cable companies. “I was cautious on AT&T from 1995 onward,” he said, “but when a company like that goes through a massive transformation, it’s time to take a second look, which we did.” Grubman said AT&T and other cable companies offered potential “triple play” of video, voice and data to large swath of consumers. As result of services AT&T could offer, he said he believed company also would be able to protect “big chunk” of its consumer long- distance base. However, Grubman said he rescinded his “buy” recommendation for AT&T because it was breaking wireless off into separate company. He told Rep. Ferguson (R-N.J.) that there were companies with which Salomon did investment banking business but that didn’t earn favorable rating. Most notable was Sprint, Grubman said, but he hadn’t been “bullish” on any of Baby Bells. He said he didn’t follow many companies that went public through Salomon and similar firms.