The Unraveling Of Rhodia

Rhodiagate. That is what the French are calling the scandal enveloping Rhodia (RHA ), a Paris-based producer of specialty chemicals. The $7 billion company has lost $2.9 billion over the past four years and is struggling to pay down more than $3 billion in debt. The New York-traded share price has slid from more than $24 to less than $2 since it was spun off from French chemical-pharmaceutical giant Rhône-Poulenc in 1998. The French stock market regulator, in an administrative finding issued on Mar. 25, accused Rhodia of failing to disclose key information that could have warned investors of how dire things were. Rhodia says it is contesting the finding.

What's really shaking up France is that the meltdown happened under the noses of some of the country's most respected business and government leaders. Rhodia's board from 1998 to 2002 included Jean-René Fourtou, the former Rhône-Poulenc chief executive who was later brought in to restore financial health to media conglomerate Vivendi Universal (V ) after the disastrous reign of Jean-Marie Messier. Another Rhodia board member, and chairman of the board's audit committee during the same period, was Thierry Breton. He recently became France's Finance Minister after leading impressive turnarounds at France Télécom (FTE ) and consumer-electronics group Thomson (TMS ). Breton and Fourtou both say they were not aware of any improprieties during their tenure at Rhodia.