Accounting blowup puts WorldCom in jeopardy

From wire service reports

JACKSON, Miss. -- WorldCom Inc., the nation's No. 2 long-distance company, slid toward bankruptcy Wednesday after disclosing what could be the biggest case of crooked accounting in U.S. history. President Bush vowed to "hold people accountable" and federal regulators filed fraud charges against the struggling company.

The faulty accounting, disclosed late Tuesday, is the latest in a series of corporate bookkeeping scandals that have shaken investors' faith. The news sent telecommunications stocks and other shares plunging before a late rally on Wall Street.

The current record bankruptcy, of energy trader Enron Corp. in December, involved total corporate assets of $50 billion. By contrast, WorldCom listed assets of $104 billion as of March 31.

Bush said he was "deeply concerned" about some of the accounting practices in corporate America and called "outrageous" the disclosure that WorldCom -- which is $32 billion in debt -- had hidden $3.8 billion in expenses.

Bush said the Securities Exchange Commission would investigate, and the Justice Department could step in. The SEC had already been looking into lending and accounting practices at the Mississippi-based company, which owns the MCI telephone company.

SEC Chairman Harvey Pitt said the agency had filed fraud charges against WorldCom in federal district court in New York. He said the filing was intended to prevent both the destruction of documents by WorldCom and payouts to WorldCom executives past or present. Other details were not immediately available.

Analysts said the former Wall Street darling could declare bankruptcy within the week as lenders call in millions in loans. WorldCom said it will start laying off 17,000 people -- about 20 percent of its global work force -- on Friday in hopes of saving $900 million per year.

"If loans are called, in order to avoid an immediate shutdown, leaving lots of customers in the lurch, they'd have to file for bankruptcy," said Alec Ostrow, a partner in the bankruptcy law firm of Salomon, Green & Ostrow in New York.

Outside the high steel gates of WorldCom's corporate headquarters in Clinton, Miss., employees of the beleaguered telecommunications giant tried to digest the news that their company had admitted to what could become the largest accounting fraud case in history.

Suman Mutyala, a programmer with the company for more than two years, said company officials have yet to inform employees of the potential impact of the revelation of the stock fraud.

"We don't know what's going to happen," he said. "It's very scary."

In a statement Tuesday, WorldCom said its board of directors had found $3.8 billion was wrongly listed on its books as capital expenses in 2001 and 2002. That means WorldCom may have actually lost millions of dollars when it reported profits.

John Sidgmore, who was appointed WorldCom's chief executive on April 29, said the board was "shocked" by what it found.

The company said it had fired Scott Sullivan, its chief financial officer. Sullivan could not be reached for comment; his telephone number in Boca Raton, Fla., was not published. The company also said it has accepted the resignation of David Myers as senior vice president and controller.

Arthur Andersen, which was WorldCom's accountant during the period in question, said its work was in compliance with SEC standards. It suggested Sullivan was to blame.