WorldCom Scandal-Another Example of Business Ethics Trashing Under Technology Boom

27/06/2002| IslamWeb

WorldCom Inc. teetered toward what would be the largest bankruptcy in U.S. history after shocking Wall Street - and the president - with yet another corporate scandal: 3.8 billion U.S. dollars in expenses hidden from investors. Stocks plunged Wednesday after the disclosure by the long-distance and Internet services company, the latest revelation of how business ethics were trashed during the technology boom of the late 1990s.

"We've had too many cases of people abusing their responsibilities and people just need to know that the SEC (Securities and Exchange Commission) is on it," President Bush said. The agency was already investigating WorldCom before late Tuesday's announcement by the Clinton, Miss.-based company.

SEC Chairman Harvey Pitt said late Wednesday the agency had filed fraud charges against WorldCom in federal district court in New York. He said the filing was intended in part to prevent the company from destroying documents or making payouts to WorldCom executives past or present while the SEC continues investigating. He did not elaborate further.

Pitt said the action against WorldCom was "an attempt to restore the understandably lost credibility that people have in what they are hearing and reading."

"In a scheme directed and approved by its senior management, WorldCom disguised its true operating performance by using undisclosed and improper accounting that materially overstated its income," the SEC said in the complaint.

In disclosing the accounting scandal, WorldCom said it plans to start laying off 17,000 workers - about 20 percent of its global work force - on Friday. The company also fired chief financial officer Scott Sullivan.

Analysts warned that WorldCom, owner of the MCI long-distance business and one of the world's biggest Internet "backbone" networks, could declare bankruptcy within a week, joining Enron as one of the most spectacular failures of the "New Economy."

With more than 100 billion U.S. dollars in assets reported at the end of March, a WorldCom bankruptcy would be twice as large as Enron's record-setting slide into Chapter 11 last fall and four times as big as Global Crossing's in January.

WorldCom disclosed late Tuesday that more than billion U.S. dollars of expenses in 2001 and 797 million U.S. dollars in the first three months of 2002 were recorded as capital expenses, and thus not reflected in the earnings calculation for those periods.

Arthur Andersen served as WorldCom's accountant during the period in question. The accounting firm, once one of the world's largest, was convicted earlier this month for the destruction of documents related to its work for Enron.

At Wednesday's opening on Wall Street, the Dow Jones industrial average fell more than 140 points, slipping below 9,000 for the first time since Oct. 10, before recovering to post only a slim loss for the day. The Nasdaq composite index traded below its post-Sept. 11 closing low before rebounding to a small gain.

Officials at the Nasdaq market halted trading in the two stocks used to represent WorldCom's business.

WorldCom's sudden fall comes at a time when the nation is dealing with a rash of scandals at publicly traded companies that have shaken the nation's faith in corporate America and prompted a flood of shareholder lawsuits.

Enron collapsed last year amid revelations it hid hundreds of millions of dollars in losses through shady accounting practices. Scandals followed at several other big-name companies, including Tyco International Ltd., Global Crossing and Adelphia Communications, which filed for bankruptcy Tuesday.

PHOTO CAPTION


The Worldcom sign marks the main entrance to WorldCom Northern Virginia Operation Center Wednesday June, 26, 2002 in Asburn, Va. WorldCom Inc. spiraled toward the brink of bankruptcy after the communications giant reported it had disguised 3.8 billion U.S. dollars in expenses.(AP Photo/Pablo Martinez Monsivais)