Posted on 07/02/2002 12:43:26 AM PDT by kattracks
Regulators probing alleged accounting fraud at WorldCom Inc. (NasdaqNM: WCOM - News) (WCOM, WCOME) are increasingly concerned that company officials haven't fully disclosed many details of the widening scandal, Tuesday's Wall Street Journal reported.Securities and Exchange Commission Chairman Harvey Pitt lambasted WorldCom after the company said it could have committed additional accounting errors. WorldCom previously had said it plans to restate by $3.8 billion its financial results for 2001 and part of 2002. Monday, the company said in a statement that it had uncovered what could be additional accounting problems. These could add at least another $1 billion to the company's financial revisions, people familiar with the matter said.
"WorldCom's statement is wholly inadequate and incomplete," Mr. Pitt said. "It demonstrates a lack of commitment to full disclosure to investors and less than full cooperation with the SEC." The SEC has brought a civil fraud suit against WorldCom.
WorldCom fired back, saying it was "very surprised" by Mr. Pitt's comments. " Our response was entirely in line and is in fact a summary of what we know at this point."
WorldCom's additional disclosure comes just as the company is desperately trying to put its accounting troubles behind it. As WorldCom continues negotiating to secure new financing from banks, it may now have a harder time convincing them that it is financially sound enough to merit further investment.
WorldCom's stock Monday fell more than 90% to six cents a share in its first day of trading on the Nasdaq Stock Market since it disclosed its planned financial restatement last week. WorldCom also said it received notice from Nasdaq that it will be delisted on Friday.
In addition, it looks increasingly likely that WorldCom will have to seek bankruptcy-court protection to reorganize its way out of its problems. Since the company has said it will restate financial results for 2001 and the first quarter of 2002, reporting losses instead of profits, it is in default on credit lines totaling $4.25 billion. The company has retained Weil, Gotshal & Manges to prepare a bankruptcy filing if necessary.
Meanwhile, the U.S. General Services Administration said it is reviewing all of its contracts with WorldCom following the SEC's allegations of accounting fraud, and might suspend WorldCom from new government contracts.
The SEC had directed WorldCom to submit by Monday a sworn statement describing in detail the facts and circumstances underlying the planned $3.8 billion restatement of financial results related to 2001 and part of 2002. In its statement, WorldCom said it is also investigating certain "reversals of reserve accounts" in 1999 and 2000.
At the end of last week, a member of WorldCom's accounting staff faxed management that there were a series of reserve reversals that should be checked. Companies typically set aside reserves from earnings to cover the estimated cost of a future event. If this cost doesn't materialize, the reserve can be reversed back into earnings.
Wall Street Journal Staff Reporters Deborah Solomon, Jared Sandberg, Susan Pulliam and Michael Schroeder contributed to this report.
The problem here is one of ENFORCEMENT. Unless the guilty pay, and pay dearly, they will continue to break EXISTING laws.
WorldCom is so toast. The only thing that could possibly save it would be a massive loan.
But with the SEC on the warpath and even President Bush bad-mouthing the company, I can't see any bank willing to bail them out with the billions necessary.
"Regulators probing alleged accounting fraud at WorldCom Inc. are increasingly concerned that company
officials haven't fully disclosed many details of the widening scandal, Tuesday's Wall Street Journal reported."
Who's buying? At this point, it's hard to tell. Daytraders for sure, where a 2 cent swing can be a huge percentage gain or loss. Creditors, possibly. And there are certainly speculators out there who think sinking $5,000 bucks to buy 100,000 shares is like buying a lotto ticket.
You just have to wonder how these criminls like Dodd keep getting elected. Must be voter fraud....no other explanation makes sense.
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