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wish there were a youtube video..

http://commdocs.house.gov/committees/bank/hba83079.000/hba83079_0.HTM#15

Monday, July 8, 2002
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.

I thank you, Mr. Chairman, for your continuing leadership on this important matter.

The CHAIRMAN. Gentleman’s time has expired. Further opening statements?
The gentlelady from California Ms. Waters.
Ms. WATERS. Thank you very much, Mr. Chairman. I sincerely thank you for calling this hearing, and I really do appreciate your patience in allowing me and other Members to take the time that we need in order to give our opinion about what is going on.
Americans are watching and waiting to see if the Members of Congress are going to get serious about investigating corporate crime and supporting tough legislation to prevent the corporate fraud schemes we have seen unveiled in recent weeks. WorldCom, Incorporated, joins a growing list of corporations accused of wrongdoing and criminal activities, Enron, Arthur Andersen, Tyco International, Adelphia Communications, Rite-Aid, Global Crossing, Xerox and more to come, corporations whose executives stand accused of abuse of stock options, sweetheart loans, conflict of interest, excessive compensation and severance pay, and now the Securities and Exchange Commission has filed a fraud lawsuit in Federal court against WorldCom, Incorporated. This suit alleges WorldCom, Incorporated, was directed and approved by top managers to keep earnings in line with Wall Street expectations and to support WorldCom stock prices.
In essence, WorldCom has revealed they inflated their books by $3.9 billion. They treated ongoing operating costs as capital investments. They reduced their operating expenses, that is, the costs they paid to other carriers for using their networks, by spreading the costs into the future. This improper accounting is no error, no mistake. It is calculated to enhance the company’s net income and to hike its earnings before interest, depreciation, taxes and amortization. This made WorldCom appear healthier than it was and thus more attractive to investors.

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A syndicate of banks holds $2.6 billion in unsecured loans and bondholders about $30 billion of WorldCom bonds, all of which are in jeopardy. The banks could call in their loans, and the WorldCom bonds could be thrown into default. My own State of California public employee retirement pension funds could lose approximately $580 million. WorldCom could easily file the largest bankruptcy in history. The impact of such a bankruptcy will be felt around the world. Aside from the 17,000 WorldCom employees, thousand of employees in related industries could be laid off. Thousands of pensioners could lose their pensions, and the damage to our economy is incalculable.
This cowboy capitalism must stop. The President of the United States cannot simply treat this as damage control for its future election of stump speech with the right sound bites is not good enough. The President of the United States must support tough legislation, and he must use the power of the White House to get the support of the usual course of defenders of the megathieves of corporations to vote to live up to their tough on crime rhetoric with mandatory minimum sentences.
The shameful corporate culture of old boy relationships where major banks led by Citigroup, with J.P. Morgan, Bank of America, Fleet Boston, Bank One and Wells Fargo, made billions of dollars of uncapitalized loans to WorldCom without any due diligence, but at the same time cannot find in their corporate hearts a way to provide home mortgages to working families to own a home, and it is disgusting.
The analyst, Mr. Jack Grubman from Salomon Smith Barney, with close ties to WorldCom—and, by the way, he refers to close ties and conflict of interest as synergy—is the one who recommended WorldCom as a good investment while WorldCom was on the brink of collapse, and he should be indicted. The founder Mr. Ebbers, the board of directors, and certainly the auditor of the now infamous Arthur Andersen should have known and should be held responsible. Mr. Sullivan committed the simplest, most easily detectable accounting fraud. He lied about operating costs, his debt, and is still trying to justify operating costs as capital costs. Everyone should have known, and I believe they did know.

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I was alerted that the principals we have here today will take the Fifth Amendment, and that is their constitutional right to do so. However, I expect the Justice Department to determine if there was a conspiracy to commit fraud. I expect the Justice Department to go after WorldCom’s auditor, the consistently insider conflict of interest wrongdoer Arthur Andersen, once again. I expect Mr. Sullivan to return the $10 million retention bonus given to him. And I expect the SEC and the Justice Department to delve into the sale of his WorldCom stock to determine if he benefited from the inflated stock prices that he created.
The CHAIRMAN. The gentlelady’s time has expired. I Wish to wrap up.
Ms. WATERS. Fraudulent accounting practices even at the risk of jeopardizing the completion of his multimillion-dollar mansion.
I expect the Justice Department to examine Mr. Ebbers’ WorldCom loans and stock options to determine if he benefited from the cooking of the books.
I demand the SEC to exercise its authority to getting to the details of the WorldCom fraud. What other operating expenses have been reported as capital expense? How can we protect the pensioners, and how will MCI and other customers be protected?
The immoral and unconscionable practices of corporate America have been festering for a long time. Corporate America in general and some particular corporations such as Enron and WorldCom have gained power and influence by their connection to politicians by the way of campaign contributions and cozy relationships. These—
The CHAIRMAN. The gentlelady’s 6 minutes have expired.
Ms. WATERS. Unanimous consent for 30 seconds.
Mr. GREEN. I object.
The CHAIRMAN. Gentleman objects. Let me indicate the gentlelady can submit the rest of her written statement for the record, as all Members may do.