Critics say the costs to investors and creditors — WorldCom has spent about $40 million on two probes into its fraudulent accounting — is a scandal itself. Some investigations have become mired in controversy because of fraud they missed, millions they cost and relationships between investigators and investigated.
Some creditors, prosecutors and defense attorneys say companies are overreacting. But companies and the lawyers they hire to investigate say they need to know the full scope of scandals before they can truly mend their ways. In fact, a new law requires corporate audit committees to have any allegations of misconduct investigated.
Latest to be made public: Coca-Cola recently said that an investigation commissioned by its audit committee found improper “financial arrangements” with some of its equipment suppliers. But the audit committee said the investigators — from Gibson Dunn & Crutcher — debunked several larger allegations of financial fraud and racial discrimination.
Led by the law firm of Boies Schiller & Flexner, about 25 attorneys and 100 accountants spent an estimated 65,000 hours last year reviewing accounting problems at Tyco International. Lead attorney David Boies reported the effort found no “systemic or significant fraud.” The late December news helped Tyco renegotiate $4.5 billion in bonds at better-than-expected rates. But within months, Tyco announced it had found another $1.3 billion in accounting problems.