- The Washington Times - Friday, June 28, 2002

President Bush exhorted business executives yesterday to be honest with investors as the administration sought to quell the crisis of confidence on Wall Street with swift action to punish WorldCom Inc.

In an orchestrated campaign aimed at putting to rest criticism by some in Congress that regulators were asleep at the switch, administration officials called for jail terms for errant executives. Also, the Securities and Exchange Commission went to the courts and froze WorldCom's assets within a day of its admission that it made the largest accounting misstatement in the nation's history.

The flurry of action contrasts with the government's delayed response to Enron Corp.'s accounting debacle, with the SEC and Justice Department yet to act against the company's officials after more than six months of investigation.

Mr. Bush, speaking at a meeting of the Group of Eight in Canada, pointed out that much is at stake in stopping the proliferation of corporate crimes. It is putting a damper on the economy, affecting thousands of jobs and the success of the still-fragile recovery from recession.

"I'm concerned about the economic impact of the fact that there are some corporate leaders who have not upheld their responsibility," he said, speaking as a former business executive.

"If you're a responsible citizen and you run a corporation in America, you must fully disclose all assets and liabilities, and you must treat your shareholders and employees with respect."

Treasury Secretary Paul H. O'Neill, former chief executive of Alcoa Corp., said executives must vouch for the truth of their companies' financial statements or go to jail.

"I think we've got to prosecute people to the full extent of the law," he said on ABC's "Good Morning America" program. "When I was a CEO, I held myself accountable to know everything material that would affect employees, shareholders and the general public."

Mr. O'Neill noted that quite a few top officers at WorldCom must have known about its maneuver to portray $3.8 billion of operating lease payments as capital expenses that would be hidden from investors, in violation of basic accounting principles.

"It's mind-boggling," he said, "because the numbers are so huge. The accounting technique they used is so fundamental."

The relative simplicity of WorldCom's manipulation, in contrast to Enron's, enabled the SEC to take the case to court with unprecedented speed, analysts said. WorldCom's maneuvering was unlike the complexity of Enron's thousands of off-book partnerships and accounting ruses.

SEC Chairman Harvey L. Pitt voiced the reaction of many investors and traders when he said the sheer audacity of the WorldCom scam made him "mad as hell." WorldCom's own recently appointed chief executive, John Sidgmore, has said he was "shocked" when he discovered the ruse.

Mr. Pitt, whom Democrats in Congress have criticized for not taking more aggressive action, said he has presided over an unprecedented number of investigations and enforcement measures in response to a proliferation of corporate scandals that surfaced in his 10 months in office.

Most of the problems were "inherited" and "reflect the irrational exuberance of the '90s and the longest sustained bull market in history," he said in a speech to the New York Economic Club on Wednesday night.

"The seemingly endless drumbeat of Enron, Global Crossing, Tyco, ImClone, Xerox, Andersen, Adelphia and now WorldCom have caused investors around the globe to lose confidence in American business and to question its basic integrity," he said. "If that is allowed to persist, a key pillar on which our capital markets are premised will crumble."

Many analysts say the social environment that tolerated dishonesty and ethical lapses has been building for some time. Often corporations and employees have justified crossing the line as a way to maintain profits and preserve jobs.

An American Management Association poll last month found that a third of 175 corporate executives surveyed said their companies' public statements sometimes conflicted with reality.

A third said their companies were accountable to the public only some of the time and that, while striving always to act legally, their actions might not be perceived as ethical all the time.

Although business and social ethics have been sliding for some time, analysts say, the recession and severe financial troubles of various industries such as energy and telecommunications could have brought out the worst in executives striving to live up to investors' high expectations.

The SEC said WorldCom, for instance, created its accounting scheme in an apparently desperate attempt to meet Wall Street profit estimates and avoid reporting losses last year that would have accelerated the company's demise.

"In the last two years when the market started falling and all of the sudden the money was not flowing in, people got panicked and took the easy way out," said Sidney Friedman, an author on business ethics issues.


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