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American Morning

Interview with James Surowiecki

Aired December 31, 2002 - 09:34   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


PAULA ZAHN, CNN ANCHOR: Some CEOs have gone from the hall of fame to the hall of shame this year, and James Surowiecki of the "New Yorker" magazine covers the rise and fall of the bad guys in big business in the anthology, "Best Business Crime Writing of the Year."
And he joins us now with his picks for the top four corporate scandals for 2002 -- good morning.

JAMES SUROWIECKI, "NEW YORKER": Thanks for having me on.

ZAHN: You got to write this book pretty quickly, didn't you?

SUROWIECKI: Yes, it happened very fast. And you know, that's what the year was. This was the story of the year, were bad guys CEOs and CFOs. And so -- but we wanted to sort of put all these stories together.

ZAHN: We are going to take a walk down the hall of shame with you, and for starters, we are going to go off with the Enron CFO Andy Fastow.

SUROWIECKI: Yes. Fastow was a person who basically put together these elaborate schemes at Enron to kind of manipulate the company, and made an enormous amount of money for himself at the expense of Enron's shareholders.

ZAHN: What else should we know about this guy?

SUROWIECKI: Well, I think he was really this kind of -- the genius behind Enron's backroom machinations. And two years ago, everybody thought he was the best CFO in America, and very quickly fell to almost nothing.

ZAHN: What in the end got him? Was it his -- was it greed?

SUROWIECKI: Well, it is interesting. He married a very wealthy woman, and some people have argued that he wanted to have his own money, and he was very much a kind of social climber in Houston. But he was also just one of these mathematical geniuses, I think, who probably took a lot of pleasure in concocting really complicated schemes that -- well, basically, enriched him.

ZAHN: Let's talk about WorldCom's Scott Sullivan.

SUROWIECKI: Well, that is a much more -- a much simpler scheme. I mean, what WorldCom basically did was take expenses from one category and put them in another and basically inflated their profits by about $8 billion. In Sullivan's case, I think it was that WorldCom got itself in a situation where it was making promises it couldn't keep, and this was the only way it could figure out how to keep them.

ZAHN: Boy, those perp walks just kept on coming this year, didn't they?

SUROWIECKI: Yes, they just kept coming. Yes.

ZAHN: Let's turn our attention to Imclone's Sam Waksal. He also earned a coveted spot on your hall of shame.

SUROWIECKI: Right. Well, Waksal, obviously, was indicted and then convicted, he pled guilty to insider trading charges. He ran this biotech company called Imclone and when he found out that the FDA was not going to be approving the one drug they had, he essentially counseled his family members to dump the stock. He tried to dump the stock himself but was not allowed to. Waksal is fascinating character. He is a sort of big presence in the New York social scene, very much a huckster. His entire career has been one of essentially shilling and shelling, and he finally got caught.

ZAHN: And Martha Stewart got caught in his web, didn't she?

SUROWIECKI: Exactly, and that's why I think everybody cares about Sam Waksal, really. Because in terms of the amount money, it was actually not that much money, but because Martha Stewart was involved, everyone was sort of fascinated.

ZAHN: Do you see an indictment down the road for her?

SUROWIECKI: I would be surprised at this point, I think, because of the nature of what she did. I mean, she sold her stock. But it's not clear that she actually knew what was going on. She just knew something was going on. So I would be surprised if she got indicted. Although two of the people who were involved with her, her brokers, are both in serious trouble.

ZAHN: Tyco was in the news big time today on the front page of every newspaper. Let's talk about Dennis Kozlowski, the guy who ran the place, the guy who brought us the $6,000 shower curtain.

SUROWIECKI: Exactly. Well, you remember, Dennis Kozlowski, two years ago people thought he was going to be the next Jack Welch, and that was how he sort of pitched himself, you know Tyco is going to be the next GE. And what we found out was that much of Tyco's success was built on, basically, it was just a house of cards. Kozlowski was indicted first for cheating on sales tax, he was shipping paintings without paying sales tax on them.

ZAHN: Multi-million dollar paintings in some cases.

SUROWIECKI: Multi-million dollar paintings. And then we found out that he was basically taking just tens of millions of dollars out of Tyco, first in the form of cash payments, and then just getting Tyco to pay for every single thing in his everyday life.

In the new report that came out today, he had a hotel bill that $110,000 for 13 days, and Tyco just picked up the tab.

ZAHN: How can a hotel bill come to that? What did he do in that room?

SUROWIECKI: I don't know. But we know that he spent more than a million dollars on a birthday party for his wife, which Tyco paid for half of as well.

ZAHN: We are talking about the egregious example of entertainment gone awry. Wasn't there a statue?

SUROWIECKI: The famous one -- there was a statue in which -- it was kind of like a cherub coming out of -- well, you know, it was a champagne fountain, essentially, and it was...

ZAHN: You are saying it very nicely.

SUROWIECKI: I am -- I don't know how to put it in a way...

ZAHN: There were body parts and all kinds of things involved with this thing.

SUROWIECKI: There were body parts and champagne going out. The thing that fascinated me about that story was -- it didn't seem to me you would necessarily want to be drinking from that fountain, but apparently people had a great time.

ZAHN: So what have we learned from the downfall of all of these men?

SUROWIECKI: Well, I think one of the things you learn is that when a bubble happens, which is what happened in the late '90s, people stopped paying the kind of attention they needed to pay. Investors lost a lot of their rigor, they became completely unskeptical basically as long as a stock is going up. All so you had all these companies -- all the companies we've mentioned were stock market darlings. And now, their stocks are trading basically -- well, in Enron's case, they're out of business. So I think that the lesson really is to not believe that CEOs are these superheroes we can just trust.

ZAHN: Name of the book is "Best Business Crime Writing," it is a fascinating read. James Surowiecki, thank you for dropping by. Happy New Year to you.

SUROWIECKI: Thanks for having me on.

ZAHN: And may you not have much material next year for the part II of this book.

SUROWIECKI: We are hoping there will be no sequel to this book.

ZAHN: I hope so too. Thank you. Happy New Year.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com






Aired December 31, 2002 - 09:34   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA ZAHN, CNN ANCHOR: Some CEOs have gone from the hall of fame to the hall of shame this year, and James Surowiecki of the "New Yorker" magazine covers the rise and fall of the bad guys in big business in the anthology, "Best Business Crime Writing of the Year."
And he joins us now with his picks for the top four corporate scandals for 2002 -- good morning.

JAMES SUROWIECKI, "NEW YORKER": Thanks for having me on.

ZAHN: You got to write this book pretty quickly, didn't you?

SUROWIECKI: Yes, it happened very fast. And you know, that's what the year was. This was the story of the year, were bad guys CEOs and CFOs. And so -- but we wanted to sort of put all these stories together.

ZAHN: We are going to take a walk down the hall of shame with you, and for starters, we are going to go off with the Enron CFO Andy Fastow.

SUROWIECKI: Yes. Fastow was a person who basically put together these elaborate schemes at Enron to kind of manipulate the company, and made an enormous amount of money for himself at the expense of Enron's shareholders.

ZAHN: What else should we know about this guy?

SUROWIECKI: Well, I think he was really this kind of -- the genius behind Enron's backroom machinations. And two years ago, everybody thought he was the best CFO in America, and very quickly fell to almost nothing.

ZAHN: What in the end got him? Was it his -- was it greed?

SUROWIECKI: Well, it is interesting. He married a very wealthy woman, and some people have argued that he wanted to have his own money, and he was very much a kind of social climber in Houston. But he was also just one of these mathematical geniuses, I think, who probably took a lot of pleasure in concocting really complicated schemes that -- well, basically, enriched him.

ZAHN: Let's talk about WorldCom's Scott Sullivan.

SUROWIECKI: Well, that is a much more -- a much simpler scheme. I mean, what WorldCom basically did was take expenses from one category and put them in another and basically inflated their profits by about $8 billion. In Sullivan's case, I think it was that WorldCom got itself in a situation where it was making promises it couldn't keep, and this was the only way it could figure out how to keep them.

ZAHN: Boy, those perp walks just kept on coming this year, didn't they?

SUROWIECKI: Yes, they just kept coming. Yes.

ZAHN: Let's turn our attention to Imclone's Sam Waksal. He also earned a coveted spot on your hall of shame.

SUROWIECKI: Right. Well, Waksal, obviously, was indicted and then convicted, he pled guilty to insider trading charges. He ran this biotech company called Imclone and when he found out that the FDA was not going to be approving the one drug they had, he essentially counseled his family members to dump the stock. He tried to dump the stock himself but was not allowed to. Waksal is fascinating character. He is a sort of big presence in the New York social scene, very much a huckster. His entire career has been one of essentially shilling and shelling, and he finally got caught.

ZAHN: And Martha Stewart got caught in his web, didn't she?

SUROWIECKI: Exactly, and that's why I think everybody cares about Sam Waksal, really. Because in terms of the amount money, it was actually not that much money, but because Martha Stewart was involved, everyone was sort of fascinated.

ZAHN: Do you see an indictment down the road for her?

SUROWIECKI: I would be surprised at this point, I think, because of the nature of what she did. I mean, she sold her stock. But it's not clear that she actually knew what was going on. She just knew something was going on. So I would be surprised if she got indicted. Although two of the people who were involved with her, her brokers, are both in serious trouble.

ZAHN: Tyco was in the news big time today on the front page of every newspaper. Let's talk about Dennis Kozlowski, the guy who ran the place, the guy who brought us the $6,000 shower curtain.

SUROWIECKI: Exactly. Well, you remember, Dennis Kozlowski, two years ago people thought he was going to be the next Jack Welch, and that was how he sort of pitched himself, you know Tyco is going to be the next GE. And what we found out was that much of Tyco's success was built on, basically, it was just a house of cards. Kozlowski was indicted first for cheating on sales tax, he was shipping paintings without paying sales tax on them.

ZAHN: Multi-million dollar paintings in some cases.

SUROWIECKI: Multi-million dollar paintings. And then we found out that he was basically taking just tens of millions of dollars out of Tyco, first in the form of cash payments, and then just getting Tyco to pay for every single thing in his everyday life.

In the new report that came out today, he had a hotel bill that $110,000 for 13 days, and Tyco just picked up the tab.

ZAHN: How can a hotel bill come to that? What did he do in that room?

SUROWIECKI: I don't know. But we know that he spent more than a million dollars on a birthday party for his wife, which Tyco paid for half of as well.

ZAHN: We are talking about the egregious example of entertainment gone awry. Wasn't there a statue?

SUROWIECKI: The famous one -- there was a statue in which -- it was kind of like a cherub coming out of -- well, you know, it was a champagne fountain, essentially, and it was...

ZAHN: You are saying it very nicely.

SUROWIECKI: I am -- I don't know how to put it in a way...

ZAHN: There were body parts and all kinds of things involved with this thing.

SUROWIECKI: There were body parts and champagne going out. The thing that fascinated me about that story was -- it didn't seem to me you would necessarily want to be drinking from that fountain, but apparently people had a great time.

ZAHN: So what have we learned from the downfall of all of these men?

SUROWIECKI: Well, I think one of the things you learn is that when a bubble happens, which is what happened in the late '90s, people stopped paying the kind of attention they needed to pay. Investors lost a lot of their rigor, they became completely unskeptical basically as long as a stock is going up. All so you had all these companies -- all the companies we've mentioned were stock market darlings. And now, their stocks are trading basically -- well, in Enron's case, they're out of business. So I think that the lesson really is to not believe that CEOs are these superheroes we can just trust.

ZAHN: Name of the book is "Best Business Crime Writing," it is a fascinating read. James Surowiecki, thank you for dropping by. Happy New Year to you.

SUROWIECKI: Thanks for having me on.

ZAHN: And may you not have much material next year for the part II of this book.

SUROWIECKI: We are hoping there will be no sequel to this book.

ZAHN: I hope so too. Thank you. Happy New Year.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com