- The Washington Times - Tuesday, July 2, 2002

WorldCom Inc.'s woes deepened yesterday as bank lenders declared it in default, pushing it closer to bankruptcy, and the company said it had uncovered more suspected manipulation of its books.
The government responded swiftly to the disclosures, which came in a sworn statement to the Securities and Exchange Commission, announcing it might suspend new business deals with the telecommunications giant and promising severe punishment of the wrongdoers.
WorldCom's statement to the SEC blamed Chief Financial Officer Scott D. Sullivan and Comptroller David F. Myers for masterminding the effort to hide losses from investors by shifting nearly $4 billion of operating expenses into the capital budget in 2001 and 2002.
In addition, the company said it was investigating suspected manipulation of its reserves in 1999 and 2000.
The statement did not mention any involvement by Bernie Ebbers, WorldCom's colorful founder who stepped down as chief executive in April. Mr. Ebbers has not spoken publicly about the SEC's lawsuit charging the company with securities fraud, but he reportedly told members of his church in Mississippi on Sunday that "no one will find me to have knowingly committed fraud."
SEC Chairman Harvey Pitt said the agency was reserving its harshest punishment for the perpetrators. Shareholders also were seeking restitution in a class-action lawsuit filed in a federal court in Mississippi yesterday.
"Criminal charges may be too good for the people who brought about this mess," Mr. Pitt said on NBC's "Today" show. "I'm outraged. The American public is outraged."
President Bush, in a speech in Cleveland, hinted that he was preparing measures to ensure that corporate executives who lied about their companies' finances would end up in jail.
"There must be trust. And some have violated the trust," he said. "I intend to fully enforce the law when people cheat on the balance sheets of corporate America."
WorldCom said in its statement that it terminated both Mr. Sullivan and Mr. Myers without severance pay last month when it uncovered the transfers of network-leasing payments into the capital budget, in violation of basic accounting principles.
Mr. Sullivan maintained that the transfers were proper, and all that was needed to correct the discrepancy was a "writedown of the company's capital accounts," the statement said.
The company's former auditors at Arthur Andersen, however, confirmed that the transfers were improper and required a restatement of the company's finances. That was the conclusion of the company's current auditor, KPMG LLP, as well.
Arthur Andersen, which was forced by the SEC to stop auditing after it was convicted of obstructing justice in the Enron case last month, maintained that WorldCom hid the transfers even from its own audit team.
Despite the unraveling troubles at WorldCom, the company's new chief executive, John W. Sidgmore, has been optimistic that he can save the company from bankruptcy.
But the likelihood that WorldCom quickly could go the way of Enron and end up in bankruptcy court emerged yesterday when the company disclosed it was in technical default on $4.25 billion of bank loans.
The default puts WorldCom at the mercy of its large bank creditors, including J.P. Morgan and Citibank, who now can force it into bankruptcy if they choose not to provide the new lines of credit that the company is requesting.
Any bankruptcy filing by WorldCom, with $30 billion in debt and about the same amount in yearly revenues, would eclipse Enron's as the largest corporate bankruptcy in history.
In a sign that the company was more strapped than it previously acknowledged, Mr. Sidgmore disclosed yesterday that it also was being forced to shut down a $1.5 billion program that allowed it to borrow against its stream of payments from customers.
The rapid demise of the nation's second-largest long-distance telephone-service provider was apparent on Wall Street yesterday, where the Nasdaq Stock Market announced it would delist WorldCom and its MCI tracking stock Friday unless the company requested a hearing.
WorldCom's stock plunged 93 percent to 6 cents in a record-setting day in which more than 950 million shares of the stock traded hands. It was the first day of trading since the announcement of WorldCom's questionable accounting maneuvers last week.


Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide