WorldCom execs, ex-auditors clash over accounting
WASHINGTON -- WorldCom executives clashed with former auditors Monday over responsibility for nearly $4 billion in accounting improprieties that rocked U.S. markets. The telecommunications giant's former CEO and finance chief refused to testify to a House panel investigating the debacle.
WorldCom chairman Bert Roberts called auditor Arthur Andersen's failure to uncover the irregularities "inconceivable."
Former Andersen partner Melvin Dick countered that auditors rely "on the honesty and integrity of the management of the company." He said he understands WorldCom's former chief financial officer, Scott Sullivan, has acknowledged he never told the accounting firm about the questionable bookkeeping.
Sullivan invoked his Fifth Amendment right against self-incrimination before a packed hearing of the House Financial Services Committee, saying he was doing so "based upon the advice of counsel."
WorldCom's former chief executive officer, Bernard Ebbers, did the same, saying his Washington attorney, Reid Weingarten, advised him to remain silent because of ongoing investigations by the Justice Department and the Securities and Exchange Commission.
"I do not believe I have anything to hide," Ebbers said.
Grilled company founder
Members of the panel -- Democrats and Republicans alike -- attacked the company, the Andersen accounting firm and Wall Street analyst Jack Grubman, who promoted WorldCom stock while his Salomon Smith Barney firm did investment-banking business for the company.
Several grilled company founder Ebbers, asking, for example, about the $400 million in loans he received from WorldCom and his $1.5 million annual severance payment for life. Ebbers, sitting stonily with arms crossed, repeatedly cited his Fifth Amendment privilege and declined to answer.
Later, Rep. Jim Leach, R-Iowa, told Roberts and John Sidgmore, WorldCom's current president and chief executive officer, that it was "a dereliction of duty" for the company's board to approve the loans to Ebbers.
Sidgmore allowed that, in hindsight, he wouldn't have voted to approve the loans.
WorldCom has laid off 17,000 of its 80,000 workers and Sidgmore has said additional layoffs were possible.
WorldCom, whose interests include No. 2 long-distance telephone company MCI, is battling to avoid bankruptcy after disclosing it disguised $3.9 billion of expenses as capital expenditures to appear more profitable. The SEC has filed a civil fraud suit against WorldCom. The company's shares have plunged from more than 63 in June 1999 to 22 cents Monday.
Trying to shore up investor confidence, President Bush is proposing tougher penalties -- including jail time -- for corporate officials who lie on financial statements.
"We'll vigorously pursue people who break the law. ... That will restore confidence" in the markets, Bush said at a White House news conference.