Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

WorldCom Probes Shift Focus to Ousted CEO Ebbers
Dow Jones News Service | Monday, July 1, 2002

Posted on 06/30/2002 11:34:18 PM PDT by HAL9000

Investigators probing the accounting scandal at WorldCom Inc. are turning their attention to the company's recently ousted chief executive, Bernard J. Ebbers, to determine what role he may have played in the alleged fraud that has brought the giant telecom concern to its knees, Monday's Wall Street Journal reported.

The focus on Mr. Ebbers comes as officials involved with a myriad of probes become increasingly convinced they will find evidence of improper accounting beyond the $3.8 billion that WorldCom disclosed last week will need to be restated. The Securities and Exchange Commission has brought a civil charge of fraud against the company. Already, WorldCom's planned accounting restatement is among the largest in U.S. history, six times as large as that of Enron Corp.

Yesterday, William McLucas, a former enforcement chief at the Securities and Exchange Commission who was hired by WorldCom to conduct an internal investigation, began an intense round of questioning with the company's top executives, including Chief Executive John Sidgmore. Mr. McLucas, a tough-nosed investigator who previously conducted Enron's internal inquiry, is expected to interview Mr. Ebbers. The SEC also has asked WorldCom about Mr. Ebbers's potential involvement, and a Congressional committee has subpoenaed Mr. Ebbers, along with other WorldCom officials, to a July 8 hearing.

Mr. Ebbers's tight control of WorldCom has raised questions about how such a large overstatement of profits could have occurred on his watch without his knowledge. Mr. Ebbers, who assembled WorldCom through a string of 70 acquisitions, was ousted in April for a series of missteps that had led to a 90% decline in the company's stock value.

Mr. Ebbers has shunned the public eye since WorldCom disclosed the improper accounting last week. But yesterday, at his church in Brookhaven, Miss., Mr. Ebbers made his first public comments about the firestorm in an appearance before his congregation. Mr. Ebbers appeared at Easthaven Baptist Church as usual to teach Sunday school and attend the morning worship service. At the end of the service, he walked to the front of the church and addressed the congregation. "I just want you to know you aren't going to church with a crook," he began.

Clad in blue jeans and a white shirt, Mr. Ebbers continued, "This has been a strange week at best. . . . On Tuesday I received a call telling me what was happening" at WorldCom. "I don't know what the situation is with all that has been reported," he said. "I don't know what all is going to happen or what mistakes have been made. . . . No one will find me to have knowingly committed fraud," he said, teary eyed. "More than anything else, I hope that my witness for Jesus Christ will not" be jeopardized. The congregation erupted in a standing ovation. Mr. Ebbers declined further comment.

Federal prosecutors would "like to get Bernie because he's the big man," said one person familiar with the matter. To get information about his role, they will likely "squeeze" Scott Sullivan, WorldCom's former chief financial officer, who was fired last week for doing the accounting that led to the restatement, this person said.

Whether Mr. Ebbers knew about WorldCom's questionable accounting could have broad significance. Experts say that if the accounting misdeeds were more widely known within WorldCom, this could strengthen investor lawsuits against the board, the company's lenders and any banks that underwrote offerings during the period of alleged fraud. It could also influence the U.S. Attorneys' Offices in New York and Mississippi as they decide whether to bring criminal charges, which could be leveled against WorldCom as a corporate entity or just a few rogue executives.

Just days after WorldCom disclosed its $3.8 billion restatement, which hit financial markets around the world, it is becoming clear that the multiple investigations into WorldCom's accounting are expected to uncover additional irregularities, according to people familiar with the situation. There also is growing concern that other telecommunications companies such as Global Crossing Ltd. could have hidden expenses by employing a similar accounting tactic.

WorldCom is facing criminal and regulatory probes by the Justice Department and the SEC. The company's auditor, KPMG LLP, also is pushing to do a broad review of its financial statements that would go back further than the past five quarters of inflated profits already reported, these people said.

Wall Street Journal Staff Reporters Jared Sandberg, Deborah Solomon and Nicole Harris contributed to this report.

Copyright 2002 Dow Jones & Company, Inc.

All Rights Reserved.



TOPICS: Business/Economy; Crime/Corruption; Front Page News; News/Current Events
KEYWORDS: bernardebbers; sec; worldcom

1 posted on 06/30/2002 11:34:18 PM PDT by HAL9000
[ Post Reply | Private Reply | View Replies]

To: HAL9000
Don't worry about this happening, our elected and appointed officials in Washington D.C., both Democrats & Republicans can't afford the public disclosure of criminal charges being brought against their close personal acquaintances and political cronies !!!

It could also influence the U.S. Attorneys' Offices in New York and Mississippi as they decide whether to bring criminal charges, which could be leveled against WorldCom as a corporate entity or just a few rogue executives.

Not a bad idea though !!!!

Florida attorney general may pursue RICO vs. Enron

By Paige St. John

Jan. 26, 2002

Gannett News Service

TALLAHASSEE - Even as a federal judge in Texas considers Florida's bid to be a lead plaintiff in scores of securities lawsuits piling up against Enron, Attorney General Bob Butterworth is pursuing a track that might bear better fruit: a racketeering investigation.

"The civil remedies of Florida's RICO statute provides for a tremendously broad range of remedies and can be very creative," Mark Kraus, assistant attorney general for economic crimes, said Friday.

The list of possibilities ranges from penalties against Enron officers, past and present, forfeiture of company property and even triple damages.

Kraus last week subpoenaed records from Enron, its accounting firm Arthur Andersen LLP, and Alliance Capital Management, the New York investment firm that loaded Florida's pension fund up with Enron stock, then dumped it two days before bankruptcy at 28 cents a share.

The subpoenas show Kraus is particularly interested in the role played by one Enron director, Fred Savage, who did double duty as an executive at Alliance Capital. Kraus said an attorney for Alliance already has responded, promising to cooperate with the Florida investigation.

Kraus said the attorney general's racketeering investigation is most likely to focus on fraud in the sale of securities. A lawsuit, on whatever grounds, is almost guaranteed, he said.

"You're talking about the biggest bankruptcy every. Anybody could be sued for anything. Alliance is probably sitting there, saying, 'It's inevitable,' " Kraus said.

The Florida Retirement System, run by the State Board of Administration, took a $320 million hit from the Enron bankruptcy - more than any other public fund in the United States.

At the same time, though, it is much less than one percent of the worth of the state's $96 billion pension fund. And it is a far cry from the estimated billions of dollars Florida lost when stocks plummeted after Sept. 11 - though much of that has since been regained.

Through private law firms hired by the SBA, the state has joined New York City's pension fund in seeking to be the lead plaintiffs in a securities lawsuit against Enron and Arthur Andersen. The federal judge has said she will rule on who takes first position among more than 50 would-be plaintiffs within the next 20 days.

"We have the experience and certainly suffered the greatest indignity," said Tom Herndon, executive director of the State Board of Administration.

The 650,000 state workers, teachers and other public employees whose retirement accounts are supported by the fund are not directly affected. Their retirement benefits are guaranteed.

"Even if the whole pension fund lost every dime, every employer is responsible for the pensions of their retirees and their vested members," Herndon said.

"They can rest assured the pension fund is safe and sound and will be there when they're ready to call on us."

Savage left Alliance in August, when Enron CEO Jeffrey Skilling also resigned. Alliance continued to buy Enron stock for Florida through October, when the company revealed it had overstated its assets by at least $1 billion and the U.S. Securities and Exchange Commission launched an investigation.

Alliance sold all of the Florida pension fund's 7.6 million shares of Enron stock on Nov. 30 for 28 cents a share. Two days later, Enron declared bankruptcy.

In December, the staff of the State Board of Administration fired Alliance.

Herndon said, the investment firm is not accused of wrongdoing.

"As near as I can tell on the surface - and we are still looking into the entire matter - it looks like they complied with the guidelines," Herndon said. "Did they do the appropriate due diligence? We're still wrestling with that ourselves."

2 posted on 07/01/2002 4:45:00 AM PDT by Donald Stone
[ Post Reply | Private Reply | To 1 | View Replies]

To: HAL9000
...additional to the article on the front page of today's WSJ

[Bernard Ebbers]

"Having identified the issue, taking it to the SEC and hiring an external investigator, we're certainly looking forward to getting to the bottom of this," said Brad Burns, a WorldCom spokesman. WorldCom is required Monday morning to provide the SEC with a statement explaining how the irregularities occurred.

On Tuesday, WorldCom fired Mr. Sullivan, saying he inflated profits by transferring more than $3.8 billion in "line cost" expenses to its capital accounts. Line costs are one of the telecom company's biggest expenses and include things such as access fees paid to other telecom concerns.

Now, investigators are learning that the expenses that Mr. Sullivan capitalized extended beyond access fees to other operating costs, such as maintenance and repair costs, according to people close to the situation.[Scott Sullivan]

Each quarter, these people said, Mr. Sullivan would move operating costs to its capital accounts in a systematic method intended to keep WorldCom's profits high. Mr. Sullivan's goal was to keep line costs to 42% of WorldCom's revenue -- the normal range of such costs for the company, these people said. Any costs that went beyond that 42% mark were transferred to the capital accounts, where they were written off over a period of time. Such movement allowed the company to keep its costs down and its profits artificially high. Mr. Sullivan could not be reached for comment. But people close to him have said he firmly believes that his accounting procedures were correct.

One person familiar with the situation said WorldCom "backed into the number needed."

The SEC began a separate investigation of WorldCom in March, probing issues relating to overbooking of sales, overbilling and disputed sales commissions.

Looking Further Back

WorldCom has said the alleged fraud began in the first quarter of 2001, based on what Mr. Sullivan told the company's audit committee. But people close to the company said additional improprieties may well exist in years prior to 2001, when the company did most of its acquisitions. Of particular interest is the period right after WorldCom bought the former MCI Communications Inc. for $37 billion in 1998. The merger, which catapulted WorldCom into the big leagues of telecommunications by making it the nation's second largest long-distance carrier, boosted its revenue significantly but also increased its expenses.

Over the past few years, WorldCom has consistently hit Wall Street's optimistic targets for operating earnings. The company was a steady performer and few noticed in 2000 when the company made its target two quarters in a row by tiny fractions of a cent. "When you see that they're making it by one one-hundredth of a penny you know the odds of that happening twice in a row are very slim," said Brad Rexroad, an analyst at Center for Financial Research and Analysis, a watchdog firm in Maryland. "It indicates they're willing to stretch to make the quarter."

Now, WorldCom's fate rests in the hands of its bank lenders, who have told the company they are considering loaning more money or just sitting tight. The lenders want WorldCom to identify a dollar amount it wants to borrow. Nearly 30 banks have loans outstanding to WorldCom with a combined value of $2.65 billion, but not all of them are willing to participate in a new lending facility. It is expected that a new group would split off from the original group, which is now chaired by Citigroup Inc. and Deutsche Bank.

Bankruptcy Seen Possible

Some bankers continue to forecast that WorldCom could file for bankruptcy protection under Chapter 11, which would be the largest such filing in U.S. history. Still, the idea of debtor-in-possession financing, which would rank senior to existing debt, hasn't been formally introduced. The banks also believe that they may have a legitimate way to sue for the $2.65 billion because of the alleged fraud.

At a conference Friday in federal district court in New York, related to the SEC fraud charges, Judge Jed Rakoff ordered WorldCom not to destroy or alter any documents relating to the case. The judge also ordered the appointment of a monitor to oversee many matters at WorldCom and to have free access to the company's books and accounts.

Separately, other companies are beginning to eye WorldCom's assets. Newark, N.J.-based IDT Corp. said Friday it has made6 an informal $3 billion to $4 billion offer for WorldCom's local-phone business. IDT Chairman and Chief Executive Howard Jonas said he has approached the company's banks about a deal and hopes to meet next week with Mr. Sidgmore.

-- Jerry Markon, Carrick Mollenkamp and Shawn Young contributed to this article.

Write to Jared Sandberg at jared.sandberg@wsj.com7, Deborah Solomon at deborah.solomon@wsj.com8 and Nicole Harris at nicole.harris@wsj.com9

URL for this article:
http://online.wsj.com/article/0,,SB1025473138934014760.djm,00.html

3 posted on 07/01/2002 5:06:37 AM PDT by TroutStalker
[ Post Reply | Private Reply | To 1 | View Replies]

To: HAL9000
"I just want you to know you aren't going to church with a crook,"

How very nixonian. I truly hope that since he claims the name of Jesus that he is indeed innocent of wrongdoing.

4 posted on 07/01/2002 7:21:19 AM PDT by mombonn
[ Post Reply | Private Reply | To 1 | View Replies]

To: TroutStalker; Fred Mertz; Uncle Bill; Joe Montana
I don't think these boys at Worldcom want to fool with Judge Jed Rakoff, he co-authored the book RICO Civil & Criminal Law Strategy.

LOL !!!!!!!!!

At a conference Friday in federal district court in New York, related to the SEC fraud charges, Judge Jed Rakoff ordered WorldCom not to destroy or alter any documents relating to the case. The judge also ordered the appointment of a monitor to oversee many matters at WorldCom and to have free access to the company's books and accounts.

5 posted on 07/01/2002 1:34:56 PM PDT by Donald Stone
[ Post Reply | Private Reply | To 3 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson