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American Morning

Interview With Andy Serwer

Aired July 25, 2002 - 07:08   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: On to the question of what happened on Wall Street. This morning, Andy Serwer is here to talk a little bit about the stock prices soaring yesterday. The Dow Jones Industrials recovered all of the losses from the previous two seasons, and at the end of the day, the blue chips finished up 488 points, a whopping 6 percent. The Nasdaq gained 61; the S&P 500 added 45 points.

But after the market closed, AOL Time Warner, the world's largest media company and this company's owner, revealed that the SEC is looking into its accounting practices.

First of all, let's start with the good news.

ANDY SERWER, "FORTUNE" MAGAZINE: Yes.

ZAHN: What drove the rally yesterday?

SERWER: Let's bask in the glow a little bit here, Paula, right? I mean, after all, the market is the sum total of thousands of human emotions, those emotions turned sharply positive yesterday.

A couple of factors involved. First of all, Capitol Hill progressed on that Senate reform package -- Senate and congressional reform package regarding corporate malfeasance, No. 1. No. 2, companies announcing stock buybacks. No. 3, some technical reasons, short-sellers, people who are betting the market was going down, were forced to buy stocks. And No. 4, the arrest of John Rigas and his sons, the founders behind Adelphia Communications, seeing some of those executives who are accused of malfeasance being taken away and arrested.

ZAHN: But there are different takes on that. There are some people say the markets the day before reacted negatively to further constraints on Wall Street and the way people run their company. Yesterday, analysts were saying just the opposite.

SERWER: See, I don't buy that at all when people are saying that America doesn't want more rules when it comes to regulating these guys. I think America does want Congress to step up to the plate to show that it's serious, and I think that really had a lot to do with why the market went up yesterday.

ZAHN: And what's the deal with this SEC investigation of our parent company? SERWER: Well, you know, there they go again. There is AOL in the news again. You know, AOL has had a history of accounting problems, if you go back before it merged with Time Warner. There we see that stock chart that we have seen so many times before, the stock plummeting...

ZAHN: The one that (UNINTELLIGIBLE).

SERWER: Yes, absolutely. This investigation was prompted by a "Washington Post" article suggesting cowboy accounting, aggressive accounting at the AOL part of AOL Time Warner. There are those who are saying it's not that huge a deal, it's a small part even of AOL, never mind the overall company. It's not fraud. It's simply aggressive accounting.

But in this environment, the SEC is definitely forced to take a look at this. I think that it's not going to be good for AOL stock. It's not going to be good for the market today. And that there's going to be a cloud hanging over AOL's head until this is resolved one way or the other.

ZAHN: Bring people into the process of journalists actually getting this information, and in some cases, inspiring an investigation. I mean, when it comes to Halliburton and the vice president, wasn't that story, in fact, precipitated by "The New York Times?"

SERWER: That's right.

ZAHN: And in this case, the AOL story by "The Washington Post." What is going on here?

SERWER: Well, it's very...

ZAHN: If you bring a story to "Fortune" magazine, is that big, big kudos for you...

SERWER: Oh, yes.

ZAHN: ... if you can launch an SEC investigation?

SERWER: It is. And it really is the latest sort of blood sport by journalists. This isn't taking anything away from the reporting or suggesting it's not true, but it really is sort of the greatest trophy you can get in our business, which is to prompt an SEC investigation. You mentioned Halliburton, you mentioned AOL. There have been other examples.

Interestingly, the story about AOL came from "The Washington Post," one of those squeaky-clean companies, where Warren Buffett, the billionaire investor from Omaha who has been a bastion of veracity and accuracy in all of this corporate mess, where he holds sway and is a large shareholder, the story came from "The Washington Post."

ZAHN: When you said squeaky-clean, though, your voice was dripping with sarcasm, Andy Serwer. SERWER: Well, I -- maybe envy to be fair to "The Washington Post" people. And of course, in this day and age, you never know if a company is 1,000 percent clean, but having said that, with Warren Buffett on the board, I would bet my last dollar that their numbers are accurate.

ZAHN: Andy Serwer, thanks so much -- see you later on in the morning.

SERWER: OK.

ZAHN: Appreciate it.

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