A Day of Accounting Scandals and Irrational Market Exuberance

On this day in economic and business history ...

The fallout from Enron's collapse continued to spread for months after the former energy conglomerate declared bankruptcy. One of the final Enron-caused implosions of collateral damage hit the accounting firm Arthur Andersen on June 15, 2002, when a federal jury convicted the company of obstructing justice. Andersen, according to the jury, had shredded thousands on Enron-related documents that might have helped prosecute the company for financial fraud. Andersen's defense team had argued that shredding was only normal clean-up and document security, but this claim fell on deaf ears.

The judgment destroyed Andersen, which was at the time one of the world's "Big Five" accounting firms. Its reputation was worthless following its conviction, and Andersen surrendered its license to practice as certified public accountants as well, leaving thousands of employees without jobs -- at least until they found work at one of the remaining Big Four, which divvied up most of Andersen's corporate assets as well as its best and brightest. Andersen's collapse shone a spotlight on WorldCom, another Andersen client that would soon fall into bankruptcy as well. The Arthur Andersen accounting firm thus became at least indirectly responsible for -- within the span of less than a year -- the two largest corporate bankruptcies in American history up to that time.

The one bright spot (if you can call it that) in the Andersen saga was the emergence of Accenture (NYSE: ACN  ) , which had severed all contractual ties to its former parent a year earlier shortly after its IPO. The former Andersen consultancy's new freedom and name change were well timed, and its independence allowed it to grow into one of the world's largest consulting firms without the stain of accounting scandals over its head. The devastated Andersen launched a legal counterstrike three years later, which led to the Supreme Court's overturning of its conviction. It didn't turn the accounting firm's fortunes around, however -- when your accounting firm is connected to the two largest accounting scandals of the age, it can be pretty tough to persuade anyone to hire you.

A hut full of flavor
The first Pizza Hut opened in Wichita, Kan., on June 15, 1958. There were few pizza restaurants in the United States at the time, which gave brothers Dan and Frank Carney ample room to grow from their initial $600 investment in a business working out of a small building (barely more than a townhouse) near the University of Wichita. The straightforward name was devised out of necessity: The building's attached sign had space for only nine characters, and it did look kind of like a hut.

From these humble beginnings, the Pizza Hut brand would become a global phenomenon. A year later, the first franchise opened in Topeka, Kan. There were 1,000 Pizza Huts across the United States by 1972, and five years later, PepsiCo (NYSE: PEP  ) bought the fast-growing chain. It would soon be joined by Taco Bell and KFC, forming the core of PepsiCo's thriving fast-food business. By 1986 there were more than 5,000 Pizza Huts around the world, and by 1994 that number had doubled to 10,000 franchises. Three years later Pizza Hut and its fast-food siblings were spun off in the divestiture now known as Yum! Brands (NYSE: YUM  ) . Today, Pizza Hut is the world's largest pizza franchise, with more than 11,000 restaurants located in 95 countries.

Wall Street on Broadway
America's postwar surge of interest in the stock market gained some artistic legitimacy when How Now, Dow Jones began playing on Broadway in 1967. The play ran for 220 performances until bowing for the last time on June 15, 1968. Its premise -- which is perhaps a little bit over the top even for dedicated market watchers -- was that a young woman at the stock exchange announces the closing values of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) each day, and her fiance refuses to marry her until the index crosses over the mystical 1,000-point barrier. The timing of this play, as you'll see, couldn't have been worse.

The Dow was close to four digits when the play opened, finishing at nearly 900 points after its first performance. There wasn't a lot of movement from the first performance to the last, as the Dow ended up at 913 points when How Now, Dow Jones bowed on June 15. What seemed so close turned out to be far away indeed -- after peaking at 985 points later that year, the Dow began a long and erratic slide into the stagflationary '70s. It did peak above 1,000 points just over four years after the play ended, but the four-digit barrier proved very porous during the ensuing years. It wasn't until 1982 that the Dow would finally put 1,000 points in its rearview mirror for good. If the fictional marriage hoped for in this play was built on an expectation of high Dow values, it probably had quite a rocky time during the 1970s.

Trading without a floor
New York's curb exchange (roughly equivalent to today's over-the-counter exchanges) surpassed the New York Stock Exchange -- now part of NYSE Euronext (UNKNOWN: NYX.DL  ) -- in volume for the first time ever on June 15, 1929. The curb saw 1.287 million shares exchange hands, compared with 1.264 million on the NYSE trading floor. This was particularly notable, because year-to-date volume for the curb exchange had been roughly a third of the NYSE, on account of lower interest in the steady public utility stocks often traded there.

The ramping up of interest in shares on less-regulated exchanges occurred just as the market as a whole entered the final, frenzied race to its 1929 peak. Two and a half months later, the Dow would top out 22% higher than its close on June 15, before beginning a slide into the worst crash in stock market history. Five years later, President Franklin D. Roosevelt began cracking down on the curb exchanges with the creation of the SEC, ensuring that the major exchanges would always be the first choice for listing or trading the shares of reputable companies.

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