A bankruptcy court examiner said in a report released Monday that WorldCom’s fraud is likely to be even greater than had been thought.
Richard Thornburgh, a former U.S. attorney general, released a preliminary report that found WorldCom’s fraud could be even larger than the $7.2 billion restatement and that former CEO Bernie Ebbers guaranteed or pledged WorldCom stock to receive $1 billion in loans, national media organizations reported Monday.
”Our investigation strongly suggests that WorldCom personnel responded to changing business conditions and earnings pressures by taking extraordinary and illegal steps to mask the discrepancy between the financial reality at the company and Wall Street’s expectations,” Thornburgh said in his report.
Meanwhile, the New York Times and The Wall Street Journal reported Monday that WorldCom is close to reaching an agreement with the Securities and Exchange Commission, which would result in the payment of fines and a consent decree in exchange for the dismissal of the fraud case the agency filed in June.
Thornburgh’s report was released as more public groups call to spin off or break up WorldCom’s main units rather than let the company emerge from Chapter 11 bankruptcy court protection next year as virtually the same company.
“The FCC should consider issuing a notice to show cause why it should not revoke all of WorldCom’s wireless licenses and Section 214 authorizations on the ground that the company lacks the basic good character and candor that the commission requires,” J. Gregory Sidak, a resident scholar at the American Enterprise Institute, said in an abstract of a lecture Oct. 1. “I argue that it is more appropriate to liquidate WorldCom through Chapter 7 rather than to reorganize it in Chapter 11. Regulators should not resist the natural workings of the capital markets to bring WorldCom’s existence to an end.”
The Mississippi-based telecommunications titan filed for bankruptcy court protection this summer. It was the largest bankruptcy case in U.S. history. The SEC, Justice Department and Congress each are investigating WorldCom.
A handful of WorldCom executives face possible prison sentences, though federal authorities have not charged Ebbers in connection with a scheme to cook the books in order to meet Wall Street’s expectations.
WorldCom hopes to emerge from bankruptcy in mid-2003, but some public groups are asking the government to impose restrictions on the company and advocating that it be sold off or that its main parts be spun off.
In a national press call last Wednesday, Morton Bahr, president of the Communications Workers of America, said UUNET, the Internet backbone company routing half of the world’s Web traffic, and MCI, the No. 2 long distance carrier, should either should be spun off from WorldCom or sold as part of the company’s Chapter 11 reorganization.
The United Church of Christ Office of Communication Inc., the group that met with Martin Luther King Jr. in the 1960s to revoke the license of a Mississippi television station that refused to air footage of blacks, also has a beef with WorldCom.
The UCC has asked the Federal Communications Commission to block the transfer of federal licenses that WorldCom needs to provide long-distance, Internet access and other services under a debtor-in-possession financing agreement.
“The so-called new WorldCom is almost the entirely same cast of characters who created the original crisis,” says UCC spokesman Ron Buford. “We felt that their character flaws or their lapses in judgment are serious and someone has to petition on behalf of the public interest in this matter. There must be a consequence for this kind of failure to act in the public interest.”
WorldCom spokesman Peter Lucht said Monday, “I think it defies logic a church group would want to punish 63,000 hard-working WorldCom employees and millions of customers for the misdeeds of a few former company officials and to us it looks like just the latest in a series of self-serving efforts orchestrated by our competitors to eliminate competition through the use of hired guns.”
On Monday WorldCom announced policy and management changes the company has implemented over the last several weeks, including a restructuring of its audit department.
“We have reorganized our finance and accounting functions and have implemented, or are implementing, other organizational changes intended to help correct the company’s past problems, preempt their reoccurrence and create a system that will permit its newly-appointed independent auditors to complete their review of the financial statements for the years 2000, 2001 and 2002,” said John Sidgmore, WorldCom’s interim chief executive, in a statement.
WorldCom also has appointed a new chief financial officer, John Dubel, a chief restructuring officer, three new members of the board of directors and new legal and financial advisors, Sidgmore added. Furthermore, the company is in the process of hiring a new corporate controller and four line controllers to manage revenue accounting, operational accounting, financial accounting and financial controls and procedures.
“The company is doubling its internal audit department and broadening its focus to include financial accounting matters as well as operational matters,” Dubel said. “WorldCom’s internal audit department has a new reporting relationship. It now reports directly to the audit committee of the company’s board.”