- The Washington Times - Wednesday, November 6, 2002

From combined dispatches
NEW YORK The government yesterday expanded its civil-fraud charges against WorldCom, and the company raised its estimate of inflated earnings to more than $9 billion in one of the most stunning accounting scandals of the past year.
The Securities and Exchange Commission announced that it had broadened the scope of its civil-fraud charges, originally filed against the nation's second-largest long-distance company in June, to include an additional charge and to say that WorldCom misled investors starting at least as early as 1999.
The agency first charged WorldCom with fraud June 26, when the company issued its first earnings restatement, reducing earnings by $3.9 billion for 2001 and the first quarter of 2002.
"It's shocking," said Richard Tilton, a Manhattan bankruptcy lawyer and chief executive officer of Greenacre Asset Advisors LLC, which advises clients on purchasing assets from bankrupt companies. "I don't see how they can stay on track for coming out of bankruptcy by mid-2003. If they get out by the end of 2003, they're lucky."
The new counts charge that the Clinton, Miss., long-distance company committed fraud "in connection with several securities offerings" and violated securities laws dealing with internal records and bookkeeping.
WorldCom, which is operating under bankruptcy-court protection, said it told the SEC that, based on "very preliminary reviews" of its accounting, it expects an additional earnings restatement that could bring the total hole in its books to more than $9 billion.
WorldCom announced $4 billion in financial misstatements in late June, shocking a market already buffeted by the revelations of accounting irregularities at Enron. That estimate was later raised by the company to around $7 billion.
The company took pains yesterday to reassure customers that the additional restatements "have no impact on its ability to continue to provide service" or to emerge from bankruptcy protection, which it expects to do in mid-2003.
In a statement, WorldCom said it still has more than $1 billion in cash and access to untapped credit of $1.1 billion.
While the SEC has pursued civil-fraud charges against WorldCom and several former top executives, the Justice Department has been conducting a criminal investigation and has recently brought criminal charges against company executives.
The company's former controller, David Myers, and its former chief financial officer, Scott Sullivan, were arrested in August. Prosecutors said the two directed employees to falsify balance sheets to hide more than $3.8 billion in expenses, causing WorldCom earnings to be overstated by $5 billion.
Myers pleaded guilty in federal court in Manhattan in September. Mr. Sullivan has denied any wrongdoing.
The company, which owns MCI Communications, is second only to AT&T; in the long-distance market.
The company, which also admitted $50 billion in overstated goodwill earlier this year, filed for bankruptcy protection July 21, the largest in U.S. history.
As of July, the company already had laid off 17,000 of its 80,000 workers.

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