Misstatement, charges against WorldCom mount
By Marcy Gordon
WASHINGTON The government yesterday expanded 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 last year.
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A New York storefront advertises WorldCom wireless service. The company raised its estimate of inflated earnings to more than $9 billion as the Securities and Exchange Commission broadened civil fraud charges.
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WorldCom is in settlement talks with the SEC. The nation's second-largest long-distance carrier, which is operating under bankruptcy court protection, said it had told the SEC that, based on "very preliminary reviews" of its accounting, it expects an additional earnings restatement that could bring its total debt to more than $9 billion.
WorldCom announced $4 billion in financial misstatements in late June, shocking a market already buffeted by revelations of accounting irregularities at Enron. The company later raised that estimate to around $7 billion.
WorldCom 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 had 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 recently brought criminal charges against executives.
The company's former controller, David Myers, and former chief financial officer Scott Sullivan were arrested in August. Prosecutors alleged the two directed employees to falsify balance sheets to hide more than $3.8 billion in expenses, causing WorldCom to overstate earnings by $5 billion.
Myers pleaded guilty in federal court in Manhattan in September. Sullivan has denied wrongdoing.
Clinton, Miss.-based WorldCom, which owns MCI Communications, is second only to AT&T in the long-distance market. As of July, the company had laid off 17,000 of its 80,000 workers.
The new charge by the SEC yesterday alleges civil fraud in connection with public offerings of WorldCom securities at the time of the alleged accounting violations.
The SEC also added allegations that WorldCom violated federal laws regarding internal financial controls and record-keeping.
Also yesterday, a new bankruptcy report concluded that the company took "extraordinary and illegal steps" to paint a rosy picture of its crumbling finances and committed accounting fraud that likely exceeded the more than $7 billion already disclosed to investors.
Richard Thornburgh, a former U.S. attorney general appointed by the court to examine WorldCom's finances, sternly criticized the company for loaning more than $1 billion to founder and former chief executive Bernard Ebbers.