Digex Cuts Staff, WorldCom To Begin Cuts Friday

Digex

The company said the layoffs were part of an effort to align expenses with revenue and eliminate functions not core to the business.

WorldCom, which is the majority owner of Digex, also plans to start cutting 17,000 jobs this Friday--a move that stands to save the struggling carrier $900 million annually, according to the company.

Earlier this week, the Securities and Exchange Commission filed fraud charges against WorldCom for misrepresenting $3.8 billion in earnings over the past five quarters.

The SEC said the accounting improprieties are of unprecedented magnitude.

"The public can be assured that we are actively investigating these and other events relating to the veracity of WorldCom's financial statements and disclosures. As part of that investigation, we are ordering the company to file, under oath, a detailed report of the circumstances and specifics of these matters," the statement said.

WorldCom said transfers from line-cost expenses to capital accounts were not made according to generally accepted accounting principles. The transfers amounted to $3.055 billion in 2001 and $797 million in the first quarter of 2002. Without the transfers, the company would have reported a loss for 2001 and for first-quarter 2002.

In a Webcast, John Sidgmore, CEO of WorldCom, said he and the executive team were "shocked by the development." Sidgmore went on to say that immediate actions such as the termination of Scott Sullivan, CFO, and the acceptance of a resignation from David Meyers, senior vice president and controller, were being taken.

WorldCom also hired William McLucas, of the law firm of Wilmer, Cutler and Pickering, and former chief of the Enforcement Division of the SEC, to conduct an independent investigation.

"WorldCom reported itself in this matter and moved swiftly to do so once the situation became apparent. In other words, we turned ourselves in," he said.

Sidgmore said he pledged to restore confidence in WorldCom. "Part of that confidence-rebuilding exercise means being forthright about communicating problems when we discover them and being proactive in correcting them," Sidgmore said.

Solution providers are being deluged with customer calls concerning this latest blow to WorldCom.

"We are getting calls and I'm telling my customers to stick with WorldCom," said Mark Spilman, president of Vantanet, a Monsey, N.Y.-based VAR and network services consulting firm that has been working with WorldCom since 1999. "Their reputation is hurt and they can't make what happened go away, but I think they can rebuild it," he said.

The fraud charges prompted EDS, a customer of and service provider to WorldCom, to issue a statement that said its 11-year agreement with WorldCom is unaffected by the news and that WorldCom's payments to EDS are up to date.