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FBI Faces Severe Criticism; Pakistan, India Take Nuclear Brinksmanship to a New Level; NATO Teams Up with Former Adversary

Aired May 28, 2002 - 18:00   ET


ANNOUNCER: This is Lou Dobbs' MONEYLINE for Tuesday, May 28th. Here now Lou Dobbs.

LOU DOBBS, HOST: The FBI is facing some of the most severe criticism in its more than 90-year history. It is trying to control the damage. Kelli Arena will report from Washington.

Former Congressman Lee Hamilton will be here to talk about the mammoth task of revamping U.S. intelligence.

Pakistan and India take nuclear brinksmanship to a new level. Tonight, we take a look at what's at stake and how it could affect the U.S.-led war against terrorism.

NATO has teamed up with a former adversary. We'll have a special report on Russia's new relationship with the West.

Some CEOs drive their companies into the ground, while they run away with millions of dollars. Frank Glassner, an authority on executive compensation, will be here to tell us how to stop the madness.

Investors take another beating on Wall Street today, following bearish reports from both Intel and Home Depot. Jan Hopkins will have complete developments from Wall Street.

Good evening. We begin tonight with a very public effort by the FBI to improve its terror-fighting abilities and to improve its battered reputation.

The FBI has received severe criticism since the September 11th attacks for failing to investigate reports that may have exposed at least some of the hijackers. The FBI is now announcing changes it says will make the agency more effective and will prevent future tips from slipping through the bureaucracy.

Kelli Arena has the report from Washington.


KELLI ARENA, CNN CORRESPONDENT: Lou, here's what we've got so far. First, counterterrorism resources will be doubled. About 500 agents will be hired, with expertise in areas including world cultures, languages, and technology.

Now, on the agent side, more than 500 in total will be taken from the violent crimes unit, the narcotics and the white-collar crime units and moved to the counterterrorism unit.

Bottom line here, the focus is on preventing future attacks rather than on prosecution. Among some other changes, there will be a mobile counterterrorism squad based at FBI headquarters in Washington that will be dispatched around the globe when necessary, and the creation of an office of intelligence to be headed up by someone from the CIA.

Now, along with those changes, a government official says there will also be significant changes made at the Justice Department in terms of what an FBI agent can do in the field during an investigation. Now details about those changes are expected to be announced Thursday, if we don't get our hands on them before then.


DOBBS: Kelli, the FBI under severe attack and criticism here. These plans are announced today. How long have they been in the works? Is this simply a response to bad public relations?

ARENA: Well, this whole reorganization dates back to the Robert Hanssen spy saga, technology upgrades, information flow. Changes have been slowly coming since then.

Obviously, right after 9/11, there was the realization that analytically the FBI was very weak. It did not have the people in place to analyze important information and get that into the right hands, and so that was an admission early on here. Of course, the letters --

Go ahead.

DOBBS: I'm sorry, Kelli.

I realize that that is a popular statement, that the FBI is weak on analysis, yet its agents in Minneapolis and Phoenix, Arizona, seemed to do a remarkable job of analysis. It seemed that they had a little -- more than a little problem in terms of managing that analysis.

ARENA: Well, that's exactly right, Lou. You hit the nail on the head. It's managing the analysis.

It was -- both of the -- the information from Phoenix and from Minneapolis both ended up at the same terrorism unit in Washington. It was when it got to Washington that the ball was dropped, and the dots were not connected, the analysis was not done the way that it needed to be done and then fed back to the field. So that's the problem, and that's been recognized and -- this is broken. It is broken. There is no doubt about it. The FBI has a lot of changes that need to be made. The realization is there. The pressure is on.

But there is some optimism here that perhaps 9/11 was, indeed, the final wakeup call and that things will be done now after years and years of promises that changes would be made.

DOBBS: Kelli, thank you very much.

Kelli Arena reporting from Washington.

DOBBS: President Bush returns to Washington this evening, that after spending almost a week in several European countries. His trip included the signing of a historic nuclear arms treaty with Russia, an audience with the Pope, and the creation of a NATO-Russian alliance.

For more now on the president's accomplishments, I'm joined by Kathleen Koch at the White House.


As you just pointed out, Mr. Bush had a very far-reaching agenda on this, his second, European trip as president. Some of his goals more concrete, more easily achievable. Others definitely much more elusive.

Now, today, the president's last stop before heading home was a private 20-minute audience with Pope John Paul II at the Vatican. Mr. Bush made a point of bringing up the sex-abuse scandal that has rocked the church, saying that he was concerned because the Catholic church is what he calls an incredibly important institution in the United States.

Now the two men also discussed the 9/11 terror attacks, the Middle East, and Russia. And it was just hours earlier that Mr. Bush, Mr. Putin, NATO Secretary General Lord Robertson, and other European leaders signed an agreement that, for the very first time, gives Russia a seat on the new NATO-Russia council.

Russia will have a say in policy on issues from counterterrorism and regional emergencies to arms control, but it will not -- I repeat not -- have a veto on core military issues, including the eastward expansion of NATO. Mr. Bush praised the agreement and those whose foresight made it possible.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: This is an historic day, and I want to thank Lord Robertson for such great leadership. He recognizes that a Europe whole and free and at peace is an important goal and one that will be more likely to be achieved for years to come by welcoming Russia West, and, because of his vision and his hard work today, we're signing a document that does just that.


KOCH: Now Mr. Bush was faced with protests in numerous European capitals during this trip, dogged by the perception there in Europe that the United States doesn't care enough about or consult enough with its European allies. So, obviously image repair was a big goal on this trip. It's unclear how successful President Bush was on that point.

Lou, he was able to secure some renewed commitments from European leaders to continue their support of the U.S. war on terrorism. And then, of course, there was last week the centerpiece of the trip, and that was the signing in Russia of that arms control agreement that slashes by two-thirds both countries' deployed nuclear warhead arsenal over the next 10 years.

Back to you.

DOBBS: Kathleen, thank you very much. A significant and substantial list of accomplishments. Thank you very much.

KOCH: Indeed.

DOBBS: Kathleen Koch from the White House.

Russia's new relationship with NATO will help elevate that country's standing in the international community, of course, and it could further Russian trade with the world.

Tim O'Brien has the report.


TIM O'BRIEN, CNN CORRESPONDENT (voice-over): Russia will now have a voice in the affairs of NATO but only on issues related to national defense and terrorism. And even then, any full NATO member can remove any issue from the council's agenda.

Russia, on the other hand, has no veto power whatsoever. Even so, some analysts believe the NATO breakthrough may give Russia new standing among developed nations.

CLIFFORD GADDY, BROOKINGS INSTITUTION: They now see this nation is some kind of an ally with us, it's somehow moving towards the same status as Germany or France or Britain, and I think that naturally, people will look with a different eye towards Russia as they see it in that context.

O'BRIEN: The U.S. does have a stake in Russia's future. It is the world's third largest producer of oil with the world's largest gas reserves. Russia could significantly reduce U.S. dependence on Mideast oil.

Russia has also turned out to be a vital partner in the war on terrorism. President Bush is expected to decide soon whether Russia should be recognized as a market economy. Such status would widen Russian access to U.S. markets and open the door to membership in the World Trade Organization.

DON EVANS, COMMERCE SECRETARY: We're supportive, and we're hopeful. We think that's something that will happen in due course. Russia, indeed, will be a very important force in the global economic community.


O'BRIEN: The Moscow summit did not produce what many Russians had wanted most, no U.S. economic incentives or policy changes that could help stimulate the Russian economy. But it did produce important mutual gestures of friendship and trust and an agreement that, at least for now, that's enough.


DOBBS: Thank you very much.

Tim O'Brien from Washington.

Pakistan did little to ease its near state of war with India today. Pakistan test fired the third missile in four days, that missile capable of carrying nuclear warheads. Tensions in the region of Kashmir have brought India and Pakistan to the brink of war, and the international community is trying to step in to prevent that outcome.

Kitty Pilgrim reports.


KITTY PILGRIM, CNN CORRESPONDENT (voice-over): Pakistan test fired a third missile Tuesday. India retaliated with scathing rhetoric, calling Pakistan's action, quote, "belligerent posturing." In a televised address, President Musharraf this weekend threatened Pakistan would retaliate with, quote, "full force," if attacked by India.

Tuesday, shelling resumed across the border.

ANDREW WINNER, INSTITUTE FOR FOREIGN POLICY ANALYSIS: I think there's a better than 50-percent chance that this will escalate up into a broader conventional conflict with perhaps the Indians conducting some strikes on what they see as terrorist camps in the Pakistani-controlled part of Kashmir.

PILGRIM: British Foreign Minister Jack Straw had already arrived in Islamabad to attempt to cool tensions, but he took a realistic attitude about the situation.

JACK STRAW, BRITISH FOREIGN MINISTER: There are clear limits to what the international community can do, since decisions about war and peace rest with the parties to the dispute, with India and Pakistan, and not with the international community.

PILGRIM: President Putin of Russia today proposed talks between the two parties next week. The United States is concerned Pakistan may be diverted from efforts to rout out al Qaeda on the Afghan border and instead is moving troops to the border with India.

But bottom line, India insists Pakistan stop militants from crossing into Kashmir. A series of deadly attacks by kaboom separatists have tried India's patience. India again today saying it will not withdraw its hundreds of thousands of troops until those attacks stop and the terrorist bases are closed down.

JASWANT SINGH, INDIAN EXTERNAL AFFAIRS MINISTER: The world recognizes that today the epicenter of international terrorism is located in Pakistan.


PILGRIM: Now India is touching an international wound by calling attacks by Kashmir separatists terrorist attacks. It's a rallying cry the world cannot afford to ignore, and the question is does Pakistan's President Musharraf have the means and the will to stop those militant attacks.


DOBBS: Kitty, thank you very much.

Kitty Pilgrim.

On Wall Street today, concerns that consumer spending could falter in coming months helped to push the markets lower. The Dow Jones industrial average fell 122 points. The Dow has now dropped back below the 10,000 level, and it has given up all of its gains this year.

The NASDAQ and the S&P 500 both slipping more than 9 points on the day. More than $80 billion of market capitalization erased. We'll have more on the day's session later in the broadcast. Jan Hopkins will be here to wrap it all up for us.

Also, coming up next, Frank Glassner joins us to discuss excessive executive compensation in corporate America, and we'd like to know what you think about the subject.

Do you believe American corporate CEOs are paid too much? To cast your vote, log on to We'll have the results of the poll later in the broadcast. Again, that is

Still to come, New York's Attorney General Eliot Spitzer has won his battle against Merrill Lynch. But my next guest, John McConnell, says it was an unjust victory.

The market takes a severe beating. Both the Dow Jones industrials and NASDAQ, as I said, losing ground on the day. Jan Hopkins will be here to tell us exactly what happened and why.

And tonight, we take a look at corporate greed with compensation expert Frank Glassner. Stay with us.


DOBBS: The settlement between Merrill Lynch and New York's Attorney General Eliot Spitzer over stock research has forced Wall Street to introduce reform, but some critics say Spitzer never had a strong case against Merrill Lynch and the rest of Wall Street should not allow itself to be pressured into changing research practices.

Among those critics, Professor John McConnell, professor of finance and management at Purdue University.

And, Professor, it's good to have you with us.


DOBBS: Professor, many people would be surprised to hear you take the side, if you will, of the bad guys on Wall Street and come up against the good guy, Eliot Spitzer. Why so?

MCCONNELL: Well, it's not clear that I've taken the side of the bad guys. In fact, I would say that I've taken the side of the good guys, particularly with respect to the documents I reviewed.

Now just to sort of put it in context, Mr. Spitzer has invited the public to review his affidavit and to review his documents and to review his what he calls his evidence. I accepted that invitation.

I looked at it very carefully, and all I did was to write the quotes that are directly from the e-mail messages that he has claimed are his most powerful evidence.

DOBBS: Well, the famous line in terms of referring -- internal e-mails referring to stocks and the companies they represent as POS -- we'll leave that as expletive deleted, but the first three letters of the acronym, "piece of." Do you think that's out of context?

MCCONNELL: Yes, I do, as a matter of fact.

I'll give you a particular one. Instead of "piece of S," how about "piece of junk." One of the e-mails that Mr. Spitzer has touted quite regularly, has Henry Blodget referring to a stock -- I believe the stock -- well, I don't recall the name of the stock -- as a piece of junk, and he has that in his affidavit in the chart along with other colorful quotes, POS quotes, and so forth.

If you put the quote in context, it says, "Take this piece of junk off a recommended list. If you have to downgrade it, downgrade it." So, yes, he was referring to the stock as a piece of junk, but he was asking that it be downgraded and removed from a recommendation list. So I -- keep in mind that the picture Mr. Spitzer is painting is of Henry Blodget being a cheerleader for these stocks.

DOBBS: Which he certainly was, but -- overall. MCCONNELL: Well, for some of the stocks, he probably was. But at least in that particular instance, he was not leading the cheers for that particular stock.

DOBBS: So you see that as a misrepresentation, and you document your case rather well. Other instances in which Eliot Spitzer overstated or, frankly, misstated his case?

MCCONNELL: The one, of course, that I talked about in the -- my "Wall Street Journal" articles strikes me as very much stretching on Mr. Spitzer's part. His case, as I understand it, goes as follows. Analysts are incentivized to dupe investors. Now you think about Merrill Lynch as having...

DOBBS: Through investment banking fees?

MCCONNELL: Through investment banking fees. Right. And the way he supports that is to misquote a e-mail from Henry Blodget to a customer, one of the same customers that Merrill Lynch was allegedly duping, and the e-mail says, "What's so interesting about go to (ph) except investment banking fees?" Henry Blodget writes back, "Nothing."

Now Mr. Spitzer has taken that and attributed the investment banking fees to Mr. Blodget. So, if the evidence is so powerful, the question I asked is why is it necessary for the attorney general to mischaracterize a direct quote?

DOBBS: At this point, though, Professor, do you argue with the idea investment banking -- and I take your point, and as we've gone through and researched your research, your examination is exact.

MCCONNELL: Thanks. I appreciate that.

DOBBS: But the fact is the relationship between investment banking and Wall Street analysts -- does it need reform, in your judgment?

MCCONNELL: I don't know the answer to that question. I was being a little bit more specific. I was doing research, research that Mr. Spitzer invited me to do.

DOBBS: Right. Well, I'm trying to bring you to the global level.

MCCONNELL: Well, I don't know the answer to your question. My understanding is that Mr. Spitzer is going to undertaking global research of other investment firms.

DOBBS: Right.

MCCONNELL: If he comes forward with that evidence, I will certainly take a look at it, and I invite others to take a look at it. And that evidence may -- may -- support the case, but the evidence I've seen so far does not support that case that there is a -- quote, "a problem" and that Mr. Spitzer knows the answer to that problem. DOBBS: Professor, one of the things that we love on this broadcast are facts put in context and misstatements put in...

MCCONNELL: Put right.

DOBBS: ... put right.

We appreciate your being with us.

MCCONNELL: Oh, it's great to be here. Thank you very kindly.

DOBBS: Thank you.

Professor John McConnell.

Coming up next here, another energy company has lost its chief executive officer in a growing scandal over energy trading in this country. We will tell you what is going on in this once high-flying sector tonight.

And the discovery on Mars that could make it easier for a manned mission to the red planet. It could also pose a risk of flooding on the arid terrain you're looking at on your screen.

All of that and more still ahead.


DOBBS: Overall, investors lost more money today on Wall Street, concern about corporate earnings and future strength of the consumer.

Jan Hopkins is here to tell us all what happened on Wall Street today.


JAN HOPKINS, CNN CORRESPONDENT: Well, Lou, basically, investors didn't come back from the holiday weekend. This was the second lightest trading volume day of the year. And for the NASDAQ, the lightest was the Friday before the vacation. So investors that did come back were interested in selling.

The Dow closed at -- the session below 10,000, down 122 points. The Dow slipping into the minus column now for the year. NASDAQ lost another 9 points. That makes its yearly loss about 15 percent. The S&P also down 9 points today, down about 6-1/2 percent for the year.

Christine Romans is at the New York Stock Exchange and Greg Clarkin is at NASDAQ.

Christine, tell us about some of the stocks that moved.

CHRISTINE ROMANS, CNN CORRESPONDENT: Well, Jan, retail and tech stocks knocked the Dow lower. Volume here light, as you pointed out. Just under a billion shares.

Home Depot fell 5 percent, sparked a retail rout after UBS Warburg downgraded that stock to a hold.

Tyco fell $1.50. It's still planning a private sale or an IPO of its CIT unit.

Coke fell 3 percent. It will pay $8 million in back wages to some 2,000 workers.

Halliburton settled 30 asbestos lawsuits, and the stock crawled closer to $20, back at the level where asbestos fears last fall sent Halliburton on a sell-off that took it below $9 a share. So analysts (ph) making all of that back.

Dynegy was a rare advancer on the most actives list here. Its CEO resigned.

Other advancers in the sell-off, oil services, airlines, and gold stocks.

Now to the NASDAQ and Greg.

GREG CLARKIN, CNN CORRESPONDENT: And, Christine, the bit story today here concerned Intel. Merrill Lynch's analyst said the first two months of the quarter for Intel were soft. He reduced his earnings and revenue estimates.

Now the stock did come back in about the last hour of trading, but still it finished lower by about 1 percent or so. Merrill's analyst also reiterating his intermediate-term strong buy rating on the stock as well as his buy rating in the long term.

On to Novellus. The chip equipment company updated Wall Street after the close of trading today. The company's executives say they are seeing an upturn in business, but the sustainability is dependent on corporate confidence and corporate spending. Now, ahead of that report, Novellus shares gained 49 cents.

Software was a choppy and mixed bag today. Oracle stock rose. Meanwhile, Veritas and Microsoft finishing lower on the day.

Again, it was a broad, broad sell-off, but we really did see it on extremely light volume, and the only winning sectors here today biotechnology stocks and the networking stocks.


HOPKINS: Thanks, Greg.

Let's go back to the Dow. Not only has the Dow retraced this year's gains. If you look back at when the Dow first crossed 10,000, it was March 30th, 1999. The index has given back all of the gains it has made in the last three years.

It's no wonder that investors are confused about what to do. One trader told me he thinks that investors are frozen in place. They aren't willing to buy or sell. What worked before isn't working now. This is the year that gold rallies. It's up another $3.50 today. Technology is falling. It wasn't like that in the late '90s. This confusion is one reason that the volume is so light and priced as well as we just saw. They're stuck or stuck in reverse.


DOBBS: You know, again, Jan, I'm not sure I buy the idea that the public investor is confused here. There's not very much to stimulate a person to buy in this environment.

HOPKINS: Well -- and as prices fall, you figure, "Why buy now? Wait for two weeks. It will be cheaper." And then it falls further, and you wait another two weeks.

DOBBS: And this is a market that has been promised so much and so little delivered, so much taken away, it seems like rational behavior on the part of this market to me.

HOPKINS: Well, you may be right, and, certainly, there are a lot of investors that are just sitting tight.

DOBBS: OK. Jan, as they say, that's what makes markets. Jan Hopkins. As always, thanks.

Problems piling up within the energy industry. Dynegy's chief executive officer today resigned. That's just four days after CMS Energy's chairman stepped down over sham trades. This follows the collapse, of course, of Enron on December 2nd of 2001.

Fred Katayama now has the very latest on an industry in very big trouble.


FRED KATAYAMA, CNN CORRESPONDENT (voice-over): Chuck Watson left the corner office of Dynegy today amid the scandal surrounding bogus energy trades.

Scam trades are just the latest in a long line of problems plaguing the energy sector since the Enron debacle, producing a perfect electrical storm. Companies such as CMS and Reliant also engaged in sham trades aimed at beefing up trading volume and revenues.

Federal and state regulators are investigating those trades as well as market manipulation in California.

And prices and trading volumes for electricity and natural gas have fallen sharply, biting into earnings.

JOHN WHITLOCK, STANDARD & POOR'S: The central concern is the marketplace is, you know, demanding liquidity, and you have investor confidence sagging to some degree, and it's kind of creating a circle where the investor confidence could impinge on liquidity, and then, without the liquidity, the cash flow potential might dry up. KATAYAMA: As a result, merchant energy stocks have lost a third to more than three-fourths of their value over the past year. The companies generally carry low investment grade ratings and are on review for possible downgrades. They are trying to regain investor confidence by firing executives, announcing restructuring plans, and luring capital.

Williams Company says it will issue more stock and sell assets to pay down its debt but not before taking a dig at analysts.

STEVE MALCOLM, CHAIRMAN AND CEO, WILLIAMS: The crisis that we're addressing here relates to the credit cloud, which has been somewhat created by the ratings agencies and their uncertainty as to, you know, what are the appropriate measures and ratios that companies like Williams should hold. I don't think ours is a crisis of confidence.


KATAYAMA: But many investors are losing confidence in their stocks, and a political cloud could loom over those shares for some time since this is an election year and many burned investors and California brownout victims are demanding action.


DOBBS: Fred, thank you very much.

Fred Katayama.

Coming up next, Andersen's defense attorney keeps up the pressure on the prosecution in the obstruction of justice trial. We'll have a live report for you from Houston with the very latest. Peter Viles.

And the summer blockbusters are, apparently, breaking box-office records, but an audit of the numbers reveals a somewhat different story. Talk about sham accounting. Stay with us.


DOBBS: These are some of the top stories we're following. Pakistan has tested another missile, a missile capable of carrying a nuclear warhead into India. The two countries tonight are dangerously close to war. The United States, the United Kingdom, Russia and other countries, are working diligently trying to ease tensions between the two nations.

Russia is now a voice in NATO. It is a member. Russia today joined 19 NATO members on a new cooperation council. Russia's voting power is limited. It has no veto rights, but it is a member and a foundation has been laid for the future.

The FBI is overhauling the way it handles terrorism. Hundreds of agents to be reassigned to anti-terrorism duty. The Bureau has been fiercely criticized that it did not follow up reports that may have exposed some of the September 11th hijackers. No management changes were announced. Another black eye for the FBI today as a former agent in the Boston office was convicted of protecting several organized crime figures. John Connolly was found guilty of racketeering, obstruction of justice and lying to the FBI. Those crimes led the FBI to change the way the Bureau handles informants, and they could lead to 45 years in prison for Connolly when he is sentenced. That sentencing is scheduled in August.

It is day 17 of the Andersen trial in Houston. And the firm's attorneys finally presented their defense of a single charge of obstruction of justice. The accounting firm called as its first witness a single official who said he knew of no effort by Andersen, the firm, to keep information away from the Securities and Exchange Commission. Peter Viles has the story from Houston.


PETER VILES, CNN CORRESPONDENT (voice-over): Week four in the Andersen trial and finally the firm gets to put on its defense. Witness No. 1, top partner Richard Corgel.

RICHARD CORGEL, ANDERSEN PARTNER: The trial is continuing so I really can't comment.

VILES: Corgel's strongest testimony for the defense? He viewed the infamous Nancy Temple e-mail reminding others of the firm's document policy as -- quote -- "absolutely neutral. It would not tell me to take action one way or the other." Later he testified he knew of "absolutely no attempt to keep documents away from the SEC."

On cross examination, though, the government used Corgel to establish that Andersen partners feared -- quote -- "smoking guns." And that was one reason to destroy extraneous papers.

Prosecutors introduced an Andersen e-mail containing this guidance. Quote: "Don't leave smoking guns in your work papers or elsewhere that can be devastating to the firm."

A second Andersen witness, computer specialist Chad Dijon, gave an innocent explanation to an e-mail the jury had already seen, in which he tells his staff to clean up computer files by the end of the day, reminding the staff, "This comes from the partners and is important."

The real story now says he set that deadline himself, hoping to finish all of his projects on time because he was up for a promotion last fall. Nobody told him to destroy anything specific, he said.

The standard courtroom sparring took a humorous turn. Prosecutors complaining seriously to the judge that Andersen attorney Rusty Hardin had apparently violated an agreement not to communicate with Corgel's lawyers during his testimony. Hardin rose and admitted -- quote -- "I did pass a note that said, 'these prosecutors are a humorless lot and they need to get a life.'"

(END VIDEOTAPE) Now, for the record, Lou, the prosecutors did not appear to think that that was funny, being called humorless. A third defense witness on the stand now, a woman who works on the Enron account. She's painting a picture of the Enron team within Andersen as awash with paperwork last October -- papers stacking up on top of desks and on top of filing cabinets.

And David Duncan, who ran the team, not particularly concerned, not a stickler for paperwork, laying the groundwork for part of the Andersen defense, which is that they were behind on paperwork last October and that's one reason they were interested in the document policy -- Lou.

DOBBS: At this point, the tension between this judge and the defense council is palpable. Is there any change in that relationship?

VILES: It's interesting. Saturday when they did the motions on the instructions the judge will give to the jury, Rusty Hardin was not in court for much of that. And people said they thought the judge was giving Andersen one of its better hearings on that day. And some speculated maybe it was because Rusty Hardin wasn't here for part of the day on Saturday.

In any event, today was not a day of high tension. Although I say this court's just breaking up and sometimes we have big eruptions right about now. But this was not a day of high tension. And there was actually some joking between Rusty Hardin and the judge. But it has been a constant in the trial. We expect it every day. And we know that the jury knows about it -- Lou.

DOBBS: And how is -- and I know these things are impossible to judge accurately -- but speculatively, what is your sense of the way the jury is reacting to all of this?

VILES: It's really hard to tell. There are a couple who we've caught napping from time to time, with eyes closed. And some in the media have been caught napping as well. There are a couple of men, though, who sit together, jurors 1 and 2. And they pay attention like a hawk. They watch everything, they take a lot of notes. There's a speculation within the courtroom that those two may be the leaders of the jury.

I know Leslie Caldwell, who helps run the Enron task force, was sitting with the media today so that she could get a better look across the room at the jury. The government now starting to try to pay attention to these jurors to figure out who's who.

DOBBS: OK, Peter Viles, thank you very much. And it is week four for Peter Viles in Houston as well. Thank you for your great work.

Still ahead here, more on day two of the Andersen defense. I'll be joined by law professor John Baker. He'll give his assessment of the trial so far now that the prosecution has rested and the defense has arisen. And new evidence of the possibility of life on Mars. Stay with us for that story and a great deal more.


DOBBS: Libya has offered a $2.7 billion settlement in the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland. Significant strings, however, are attached. If accepted, each of the 270 victims' families would receive $10 million. But that is only if the United States and U.N. sanctions against Libya are lifted and the country is taken off a list of terrorist states.

This is the first time any government has offered a settlement for a terrorist attack. Last year a former Libyan intelligence officer was convicted of the terrorist bombing.

James Baker says the government's case against Andersen is a stretch at best. Professor Baker says the government wanted to pursue Enron through Andersen. But Andersen refused to roll over, choosing to fight instead.

Now the Justice Department is struggling to win its case against Andersen and it has nothing on Enron. James Baker, law professor at Louisiana State University, joins us from Baton Rouge.

Professor, good to have you here.

JOHN BAKER, LOUISIANA STATE UNIVERSITY: Just one thing, Lou, it's John Baker. James was secretary of state...

DOBBS: Did I say James? I apologize. I apologize, I'm terribly sorry.

John, let me -- if I may call you John -- ask you, how did you believe the prosecution has done, now that it's rested?

BAKER: Well, from my point of view, as you know, from the beginning I thought it was wrong for the government to bring this case against Andersen. So I look at it through that lens.

And if you're going to indict a corporation, you better be sure that you've got plenty of evidence that the people at the top who are really in charge are responsible for these actions. And it doesn't appear that they've made that case out.

In fact, there's a very telling point when the prosecutors indicated that they didn't even consider Duncan the most important person in this case. They said instead it was Ms. Temple. Well, she hasn't testified. And if the best thing you've got going for you is somebody who hasn't testified, then it seems to me it's not a terribly strong case.

DOBBS: And senior partner Richard Corgel testified, in point of fact, as to her character and to her absolute noninvolvement. In point of fact, he said he was insisting himself upon good housekeeping and that's what brought up the issue. Rather extraordinary development in this case.

BAKER: Well, and that's the whole problem with the indictment. That is, who's responsible? And it's even more telling if you look at the debate over the jury charges, in which the government is trying to say that any collection of people can be responsible.

Fortunately the judge apparently has rejected that approach. That's the whole point. Who is guilty of what crime? And if you look at what the government has apparently gotten out of the judge, in terms of the charge, that the key word corruptly is going to be construed to be any improper purpose. That makes this a terribly nebulous standard.

And I think in the end it's going to come down to who do you believe and do you believe that what the corporate -- what the entity as a whole did -- was it criminal? It's not clear what it was that was criminal.

DOBBS: After three weeks, your assessment of David Duncan's testimony, Professor, as we've reported, as others have, David Duncan seemingly did not know what he pleaded guilty to. And for all the world, I'm not sure that many people do understand. What was your sense of it?

BAKER: Well, what happened to Duncan is very telling. There are two points to it. One, you can explain that Duncan said at the time he didn't think what he did was criminal. And two, later, he concluded it was criminal.

That's understandable from two points of view. One, that when you feel the heat coming on you, that you're going to plead to anything in order to escape a more serious penalty. But the more important thing that's actually been lost in all of this is that federal criminal law is so ambiguous. It is difficult to know when you are committing a crime in many cases.

This particular charge, obstruction of justice, is notoriously uncertain. And prosecutors in the past have used it even to threaten lawyers when they've advised clients at the grand jury. It all turns on persuading a witness corruptly, with intent to influence their testimony.

Well, lawyers intend to influence people's testimony all the time. So everything turns on corruptly. It's all on corruptly.

DOBBS: All on corruptly. And at this point, to whom would you give the advantage, if we can persuade you to try to interpret what a jury would do?

BAKER: Lou, predicting a jury is more difficult than predicting tomorrow's outcome in the stock market. You win cases you shouldn't win and you lose cases that you shouldn't lose. But I tell you, this is a very winnable case for Andersen, which is not to say they will win it.

DOBBS: Professor John Baker, good to have you with us. BAKER: Thank you, good to be with you.

DOBBS: Earlier in this broadcast we told you we'd be talking with former Congressman Lee Hamilton. We still plan to have that conversation, just not tonight. Because of unforeseen circumstances, I'm told, Mr. Hamilton will not join us tonight. But we will have him on shortly.

Coming up next, compensation expert Frank Glassner will be here to tell us how to stop those greedy executives from giving themselves those huge, unjustified pay raises from huge, unjustified pay levels. Stay with us.


DOBBS: Now the results of our poll. We asked if you think American corporate CEOs are overpaid and here is how you responded. It doesn't look a bit indecisive. Yes, 98 percent. Two percent, as my colleague, Wolf Blitzer would say, these of course are not scientific polls, but they are revelatory.

It's no secret executive compensation is out of control in this country. Angry investors, angry employees, are demanding change. Frank Glassner has some ideas on how to bring about that. Frank is the CEO of Compensation Design Group, a nationally respected expert on CEO compensation.

Frank, how in the world did we get to this level, that CEOs can walk away with sums approaching $200 million, irrespective of the performance of their company?

FRANK GLASSNER, CEO, COMPENSATION DESIGN GROUP: I think that some of those sums even exceed $200 million. But executive pay today can be described in three words, Lou, and that's "out of control." While over the past 10 years the wages of, let's call it the rank and file worker have increased about 34 percent, executive pay in aggregate has increased 360 percent.

And there's got to be something wrong with that picture. Now, we have no objection to pay for performance. As a matter of fact, Compensation Design Group has been advocate of pay for performance since its inception. But where pay is so significantly disconnected with performance, and the boards give a nod and a wink and still go ahead and pay, there's, like I said, a fundamental problem with that.

DOBBS: It's a fundamental problem. We're seeing it in exit packages. Terrible CEOs have done just horrible jobs in running their companies, protecting the interests of the shareholders, working for the boards of directors, walking away with huge pay packages. The CEO of Kmart is one example. How can that happen?

GLASSNER: I think that it's written into their contract per se, and a board once again, giving a nod and a wink. The CEO, or I should say outgoing CEO of Kmart, is walking out with approximately $20 million. And funny enough, the current CEO, who's responsible for bringing the ship through the bankruptcy, has over $4 million in guarantees. I wouldn't call that pay for performance in the case of the outgoing CEO. I'd call that pay for attendance.

DOBBS: In some cases we're even not getting attendance. What are we going to see happen here? Shareholders seemingly, at least to me, have fewer rights now than they did at the end of the '80s, when there was a great deal of discussion about shareholder rights. There seem to be fewer.

Boards of directors, while they're very concerned and wrought up now about inadequate accounting practices and financial reporting and disclosure, what's going to happen? Is there any way to change what is happening?

GLASSNER: The only way to change it is, you know, for the boards certainly to take their heads out of the sand and start making those hard decisions. If a CEO in a company is not performing, they have to make that hard decision to say no, we're not going to pay your bonus this year. No, we're not going to give you an additional grant of stock options.

Perchance, you know, the stock options should start to have performance-based accelerated vesting. Make them cliff-vested, versus automatically vest every year just for being there. And lastly, shareholders have a call in this too. It is...

DOBBS: Well, the idea that a CEO, without any, as it became popular on Wall Street and -- any skin in the game. That is, with a stock option they can win, should the stock price rise. But they lose absolutely nothing for poor performance. Why not simply issue a loan, or insist that a CEO have a significant amount of money at risk?

GLASSNER: Well, the CEO has the money at risk, in the sense of having the stock options and getting paid or not paid. However...

DOBBS: I'm talking about in the sense of getting either paid or punished, just as his or her investors would be?

GLASSNER: Well, that's what we're saying. Instead of making the vesting of the options automatic, the options should be cliff-vested. So let's say, you know, at the end of a three or five year period, if those performance goals are met, you accelerate the vesting.

And when you talk about loans, not to forgive those loans if performance is not met.

DOBBS: Frank, it is good to have you here. Frank Glassner, come back soon. This subject is not going away.

Coming up next, "CROSSFIRE." Let's go to James Carville and Tucker Carlson in Washington, D.C. Don't even say it, James.

JAMES CARVILLE, "CROSSFIRE": I've got to say it, sweet Lou. We're up tonight...


CARVILLE: By the way, thank you for having me on your show last week from New York.

DOBBS: Great to have you.

CARVILLE: We have a great show tonight. Thank you, sir. We've got a great show tonight. We're talking about Chandra Levy, as you know her. Her death today was ruled a suicide (sic). It was a very moving memorial service -- homicide, I'm sorry. And it was a very moving memorial service from Modesto today. We'll be talking about that with the No. 2 man in the D.C. police department, Chief Terrance Gainer.

Then we'll be talking about a very odd story in "the Wall Street Journal," about a fellow by the name of Harsley (ph), that's putting pictures of these women that go into these abortion clinics on a Web site. We're going to be talking about what that's about.

TUCKER CARLSON, "CROSSFIRE": And then, how'd you like to spend Memorial Day on a Caribbean Island eating Fruit Loops, being ferried to your appointments in a golf cart? Sound excellent? Amnesty International calls it torture. That's how our friends from al Qaeda are living on Guantanamo Bay, Cuba. And we'll be talking to the head of Amnesty International. And he'll defend his position that that's cruel and unusual.

DOBBS: I know you'll straighten him out, Tucker. We look forward to seeing both you and James, thanks.

There is new evidence tonight Mars may be more hospitable than some people thought. Scientists writing in the journal "Science" say a satellite has discovered an ocean of ice several feet beneath the surface of Mars. Should there be enough, it would of course hold out the possibility it could be turned into drinking water or even fuel, and support manned missions to the Red Planet. It also raises the possibility that life once existed on Mars.

Coming up next, we'll have the "Dobbs Report." I'll be sharing some thoughts on something brand new, the Andersen trial. Stay with us.


DOBBS: It is week four in the Andersen trial, and what a trial it's been. The prosecutors have rested their case and it was a case that in my opinion badly needed a rest. The biggest revelation so far in this trial has less to do with obstruction of justice than obstacles to justice.

The DOJ's rush to indict, abandoning reason and all fairness, and then in court trying to keep evidence from the jury. And in that, they've had a seemingly eager accomplice, Judge Melinda Harman.

Judge Harman has sided with the Justice Department 90 percent of the time in motions and objections, an unheard of imbalance in any federal courtroom. Judge Harman has appeared throughout this trial to be more interested in ministering to the justice prosecutors than in administering justice. And you have to wonder why. And why did this Justice Department, with such ambiguous and equivocal evidence, rush to indict and ultimately destroy a firm of 85,000 people? A firm that was forthcoming, a firm that reported the destruction of documents by some of its employees to the Justice Department, and held them accountable.

And why hasn't this administration been as much of a rush to indict or hold accountable the executives of Enron -- a firm that has not been forthcoming, and whose executives have stonewalled successfully for more now than seven months. Why?

Well, turning from my thoughts to yours, many viewers of this program, I'm pleased to tell you, agree with me about the unfairness of the DOJ indictment of Andersen. Dorothy Durr is among them, writing: "The Andersen trial is a sham. When the prosecution submits written testimony instead of letting the witnesses testify, could it be they're afraid the truth will emerge upon defense questioning? Also, the pro-prosecution judge should know that respect is earned and not automatic. She should be ashamed that she is anything but impartial. Lastly, what corporation would ever trust the Justice Department enough to ever cooperate with them? Justice should hang its head in shame."

And Robert Moore of Jamestown, New York offers these thoughts on Andersen, and Merrill Lynch's settlement with New York state last week, writing: "Merrill Lynch deliberately deceives millions of investors, costing them hundreds of billions of dollars, and receives $100 million slap on the wrist. Andersen screws up one audit out of thousands and is destroyed and dismembered. What was that Arthur Levitt was saying, about the strength of the accounting lobby?"

We always like to hear from you. E-mail us your thoughts at Please include your name and address.

Well, those are your words. Now "In Their Words."



UNIDENTIFIED MALE: I've done this a few times before, but it's never the same. And every time it's like the first time. Just can't wait to see your family and your loved ones. And this is great. I'm so happy.

UNIDENTIFIED FEMALE: I think these guys are doing such a great job out there, and I love you, babe.

UNIDENTIFIED MALE: I love you, too.



UNIDENTIFIED MALE: She had him when I was out to sea. It's just like -- I knew I had a son when I was on board the ship. But it's just like a completely different feeling once you actually get here and actually get to hold him.


DOBBS: And that's MONEYLINE for this evening. We thank you for being with us. For all of us here, good night from New York.


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