WorldCom auditors, execs point fingers
By Marcy Gordon
WASHINGTON WorldCom executives clashed with former auditors yesterday over responsibility for nearly $4 billion in accounting improprieties that rocked U.S. markets. The telecommunications giant's former CEO and finance chief refused to testify to a House panel investigating the debacle.
WorldCom Chairman Bert Roberts called auditor Arthur Andersen's failure to uncover the irregularities "inconceivable."
Former Andersen partner Melvin Dick countered that auditors rely "on the honesty and integrity of the management of the company." He said he understood that WorldCom's former chief financial officer, Scott Sullivan, had acknowledged never telling the accounting firm about the questionable bookkeeping.
Sullivan invoked his Fifth Amendment right against self-incrimination before a packed hearing of the House Financial Services Committee, "based upon the advice of counsel."
WorldCom's former chief executive officer, Bernard Ebbers, did the same, saying his Washington attorney, Reid Weingarten, had advised him to remain silent because of ongoing investigations by the Justice Department and the Securities and Exchange Commission.
"I do not believe I have anything to hide," Ebbers said. When all the facts are out, he said, "I believe that no one will conclude that I engaged in any criminal or fraudulent conduct."
Members of the panel Democrats and Republicans alike attacked the company, the Andersen accounting firm and Wall Street analyst Jack Grubman, who promoted WorldCom stock while his Salomon Smith Barney firm did investment banking for the company.
Several grilled company founder Ebbers, asking, for example, about $400 million in loans he had received from WorldCom and his $1.5 million annual severance payment for life. Ebbers, sitting stonily with arms crossed, repeatedly cited his Fifth Amendment privilege.
Later, Rep. Jim Leach, R-Iowa, told Roberts and John Sidgmore, WorldCom's president and chief executive officer, that it was "a dereliction of duty" for the company's board to approve the loans.
Sidgmore allowed that in hindsight he would not have voted to approve the loans.
"We are fighting for our life," he testified as the hearing dragged into the evening. Sidgmore did not rule out bankruptcy, but said he was confident the company could revive. WorldCom has laid off 17,000 of its 80,000 workers and he has said more layoffs are possible.
WorldCom, whose interests include No. 2 long-distance telephone company MCI, is battling to avoid bankruptcy after disclosing it disguised $3.9 billion of expenses as capital expenditures to appear more profitable. The SEC has filed a civil fraud suit against WorldCom and the company's shares have plunged from more than $63 in June 1999 to 22 cents yesterday.
WorldCom is the latest major corporation to face allegations of executive wrongdoing and accounting irregularities driving down public confidence in business and the stock market.