Massive WorldCom fraud reported Shares crumble as huge restatement is expected

http://cbs.marketwatch.com ^ | June 25, 2002 | Shawn Langlois

[Partisan Hack]

SAN FRANCISCO (CBS.MW) -- Shares of WorldCom plunged nearly 70 percent in Tuesday's extended session when it was reported that the troubled telecom carrier misrepresented up to $3.6 billion in earnings in a massive accounting fraud.

WorldCom could be forced to restate earnings before interest, taxation, depreciation and amortization, or EBITDA, for the past five quarters.

CFO Scott Sullivan has also been ousted.

The company boosted its cash flow and profits over that five-quarter time period by wrongly booking billions of dollars in expenses as capital expenditures, according to reports.

CNBC reported that the WorldCom board of directors only knew the extent of the fraud recently.

In an environment already undermined by accounting scandals and earnings woes, the news could hit the broader markets hard on Wednesday.

WorldCom was by far the most active issue on the Island ECN after the close. See the After Hours report.

The tech-laden Nasdaq-100 After Hours Indicator reacted with a 1 percent decline. Earlier, stocks swooned to a harsh finish with the Nasdaq closing down 36 at 1,424 while the Dow ending the day down 155 at 9,127. See Market Snapshot.

What's your take on WorldCom's dire situation? Share your thoughts in CBS MarketWatch.com's WCOM Discussion.

Shawn Langlois is community editor for CBS.MarketWatch.com in San Francisco.

[Partisan Hack]

Tomorrow may be a bad day for the market in general. This is amazing. WCOM is trading at about .24 after hours.

[dighton]

Uglier all the time. Now 20 cents on Island.

[Mike K]

Tomorrow will be a good day to be short the market and long precious metals. And the dollar just slipped below 107.

Loss of investor confidence? Just wait until people respond by by telling their borker to GMTHO (get me the heck out). Price will not be an issue. There are more of these Enron, Tyco, Global Crossing, K Mart, ImClone, WorldCom's to come.

Now maybe CNBC will stop hounding Martha Stewart, she's a very little fish in that ocean of sharks.

[Thebaddog]

Did anybody play by the rules? Is this six degrees of separation from Clinton and his immorality?

[TheCPA]

A company does not directly affect its cash flow by how it classifies an expenditure. An expenditure of cash is the same whether the expenditure is classified as an expense on the income statement or is capitalized as an asset on the balance sheet. Cash outflows for capital expenditures would appear in the statement of cash flows in the investing section, and cash outflows for ordinary expenses would reduce cash flows from operating activities. However, classifying an expenditure as a capital expenditure could actually increase the tax liability and thereby decrease the cash flow. Assets such as equipment are subject to depreciation over a number of years. However, ordinary and necessary expenses are currently deductible in computing taxable income. The line between ordinary expenses and capital expenditures is not always crystal clear.

[cynicom]

Someone said Adelphia was now at 15 cents, anyone know for sure????

[TightSqueeze]

Tomorrow may be a bad day for the market in general. This is amazing. WCOM is trading at about .24 after hours.

This could be one for the record books.

World Markets

CME Globex

[gulfwarvet]

Get ready for Black Wednesday

[Liz]

.......Get ready for Black Wednesday

.............ping............

[mhking]

BLACK WEDNESDAY AHEAD!
Shields up!

[Colombia59]

This whole thing with Worldcom is no surprise. I used to be a customer and their customer service was totally incompetent. It took me about three months to get rid of them as my long distance carrier, they continued to bill me even after I had started using another company. I finally got rid of them when I got my local carrier on the line with them in a conference call. Looks like now the market is also going to get rid of them.

[rohry]

I'm watching CNBC right now. You can sense the panic in their voices. Faber was rubbing his head and you can tell that he wished that he was someplace else. They are stalking Jack Grubman of Solomon Smith Barney (who follows WorldCom and has rated them a buy until recently) as I type this! Very reluctant to talk, tried to get the guy with the microphone to leave him alone...

Comment by Mark Haynes after the "interview," Poor Jack, he wasn't so camera shy when things were going good."

Laughing my head off...

Dow futures are below 8900 on pre-opening...

[Liz]

Comment by Mark Haynes after the "interview," Poor Jack,
he wasn't so camera shy when things were going good......"

LOL. Good one.