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WorldCom report lacking, SEC finds
As WorldCom Inc. acknowledged that its financial woes could go deeper than previously disclosed, the company in a report made public Monday attempted to blame its bookkeeping lapses squarely on former chief financial officer Scott D. Sullivan.
In the report to the Securities and Exchange Commission, which last week accused WorldCom of civil fraud for allegedly hiding $3.8 billion in expenses, WorldCom said its own auditors discovered the irregularities in May and fired Sullivan June 25 after conducting an internal audit.
Sullivan declined through his attorney to comment.
The report failed to satisfy the SEC, which blasted the report as a chronology rather than the explanation the agency had ordered. "WorldCom's statement is wholly inadequate and incomplete," SEC Chairman Harvey L. Pitt said. "It demonstrates a lack of commitment to full disclosure to investors and less than full cooperation with the SEC."
WorldCom officials said they were "very surprised" by Pitt's comments.
"Our response was entirely in line with the SEC's request, and is in fact a summary of what we know at this point," said WorldCom spokesman Brad Burns.
'The clear import'
The company has hired Bill McLucas, former director of enforcement at the SEC, to "get a full account of who knew what when, and what led us to this point," Burns said. McLucas is due to report his findings within three months, and the results of his investigation are expected to be turned over to the SEC.
WorldCom's SEC statement focused blame on former CFO Sullivan and its former controller, David F. Myers, who resigned the same day Sullivan was fired. "The clear import of the statement is to point at people who have been terminated or left the company," said Jacob S. Frenkel, a Washington, D.C., lawyer and former SEC enforcement officer.
While the SEC complaint filed last week does not name specific individuals, it does include "senior management" of the company during 2001 and the first quarter of 2002. If so, the case also could enmesh Bernard J. Ebbers, former WorldCom chief executive who was ousted in April.
According to the company's statement, current CEO John Sidgmore was not told of the irregularities until June 20, weeks after they were discovered.
May suspend contracts
Also on Monday, the Bush administration said it might suspend hundreds of millions of dollars in government contracts awarded to WorldCom if it determines that the phone giant no longer meets federal ethics standards.
The review, similar to one the federal government conducted in the wake of the Enron Corp. financial scandal, would affect the Internet and long distance phone service WorldCom provides to more than 60 federal agencies, including the Social Security Administration, Transportation Department and Defense Department.
At the same time, politicians and groups who received campaign donations from WorldCom rushed to distance themselves from the company. The National Republican Senatorial Committee said it is returning a $100,000 contribution from the company. The Democratic Senatorial Campaign Committee plans to donate to an unspecified charity $50,750 it received from WorldCom during the past five quarters when the accounting irregularities occurred. And Rep. Ronnie Shows, D-Miss., in whose district the company is based, plans to give $6,000 in company donations to a relief fund for laid-off WorldCom workers.
President Bush pledged to hold corporate wrongdoers accountable and "bring some of these folks to justice."
WorldCom's stock is likely to be delisted from the Nasdaq Stock Exchange on Friday, the company said. Its shares plummeted Monday, the first day the stock traded on the exchange after its $3.8 billion restatement last week, losing 77 cents to 6 cents.
WorldCom's prospect for finding new lenders faded to nil when Standard & Poor's, a leading credit-rating agency, downgraded WorldCom's long-term debt rating Monday for the second time in two business days. The new ranking is "CC," the second-lowest mark for debt not yet in default.