SEC Files Fraud Charges Against Worldcom

The charges came hours after President George W. Bush vowed to "hold people accountable."

The company's disclosure late Tuesday sent telecommunications stocks and other shares plunging on Wall Street before a late rally. It was the latest in a series of accounting scandals that have shaken investors' faith.

Bush said he was "deeply concerned" about some of the accounting practices in corporate America and called "outrageous" the disclosure that WorldCom had hidden dlrs 3.8 billion in expenses.

"We will fully investigate and hold people accountable for misleading not only shareholders but also employees as well," Bush said at an economic summit in Alberta, Canada.

Bush said the SEC would investigate, and the Justice Department could step in. The SEC had already been looking into lending and accounting practices at the Mississippi-based company, which owns the MCI telephone company.

SEC Chairman Harvey Pitt said the agency had filed fraud charges against WorldCom in federal district court in New York. He said the filing was intended in part to keep the company from destroying information, but other details were not immediately available.

Analysts said the former Wall Street darling could declare bankruptcy within the week as lenders call in millions in loans. WorldCom said it will start laying off 17,000 people _ about 20 percent of its global work force _ on Friday in hopes of saving dlrs 900 million per year.

"If loans are called, in order to avoid an immediate shutdown, leaving lots of customers in the lurch, they'd have to file for bankruptcy," said Alec Ostrow, a partner in the bankruptcy law firm of Salomon, Green and Ostrow in New York.

The Dow Jones average fell as much as 200 points and slipped below 9,000 for the first time since Octobor before recovering to post a slim loss. The Nasdaq traded below its post-Sept. 11 closing low but rebounded to record a small gain.

Trading was halted in the two stocks representing WorldCom's business. WorldCom Group, which represent the company's data and commercial telecommunications services, last traded at 83 cents, down from a 52-week high of dlrs 16.06. MCI Group stock, which tracks its consumer long-distance business, last traded at dlrs 1.68, down from a high of dlrs 17.33 in the last year.

In a statement Tuesday, WorldCom said its board of directors had found dlrs 3.8 billion was wrongly listed on its books as capital expenses in 2001 and 2002. That means WorldCom may have actually lost millions of dollars when it reported profits.

John Sidgmore, who was appointed WorldCom's chief executive on April 29, said the board was "shocked" by what it found.

The company said it had fired Scott Sullivan, its chief financial officer. Sullivan could not be reached for comment; his telephone number in Florida was not published. The company also said it has accepted the resignation of David Myers as senior vice president and controller.

Arthur Andersen, which was WorldCom's accountant during the period in question, said its work was in compliance with SEC standards. It suggested Sullivan was to blame.

"Important information about line costs was withheld from Andersen auditors by the chief financial officer of WorldCom," Andersen said in a statement.

Andersen is already considered doomed. The accounting firm was convicted earlier this month of obstructing justice in the Enron debacle and has lost scores of clients.

WorldCom's sudden fall comes at a time when the U.S is dealing with a rash of corporate scandals, from Enron to Tyco International, Global Crossing and Adelphia Communications, which filed for bankruptcy Tuesday.

The SEC said in a statement that WorldCom's disclosures merely confirm the existence of "accounting improprieties of unprecedented magnitude."

Mississippi Attorney General Mike Moore said his office has directed WorldCom to preserve all documents related to the suspected audits and advise its auditor to do so as well. KPMG is WorldCom's internal accounting firm.

WorldCom, second only to AT-and-T in the long-distance market, started as a small long-distance company but grew into a giant through acquisitions over the past 15 years. Two years ago, that growth stopped when regulators blocked WorldCom's proposed dlrs 129 billion merger with Sprint

In April, chief executive Bernard Ebbers resigned under pressure amid mounting debt at WorldCom and questions about dlrs 408 million in loans the company gave him.

Rick Black, analyst for Blaylock and Partners in New York, said the latest disclosures raise further suspicions about Ebbers.

"The people who were running the company prior to this should know what's going on," he said. "If the CFO knows, the next question people are going to ask is what did Bernie Ebbers know, and of course they're going to ask what did the board know."

Ebbers could not be reached at home and did not immediately return calls to his office.

In an interview after his ouster, Ebbers told a TV station: "Our accounting, to the best of my knowledge, is absolutely clean."

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