WorldCom Chief Executive John Sidgmore told President George W. Bush that he was "surprised and outraged" by the accounting irregularities that allowed it to hide $1.2 billion in losses over the past five quarters. Sidgmore pledged the company would cooperate with government investigators, who have demanded testimony and corporate records.
WorldCom, the No. 2 U.S. long-distance telephone and data services company, on Tuesday fired Chief Financial Officer Scott Sullivan after it discovered that normal operating expenses were improperly recorded, a move that allowed it to hide expenses, inflate cash flow and artificially post profits.
A federal judge on Friday barred WorldCom employees from destroying documents or receiving payments of more than $100,000. In the wake of document shredding at collapsed energy trader Enron, the judge will appoint a corporate monitor to ensure WorldCom retains records needed to complete the accounting investigation.
The company, which was charged with fraud by the Securities and Exchange Commission, plans to restate results, erasing profits since the beginning of 2001. Two congressional committees also subpoenaed testimony and documents from WorldCom executives.
Meanwhile, WorldCom on Friday started sending out pink slips to the 17,000 employees, or 20 percent of its work force, who will be laid off in a move to save cash. The cuts will be spread throughout the company, with less than 100 jobs cut at its Clinton, Miss., headquarters.
WorldCom has been hiring advisers to help it weigh its options and dispose of some secondary businesses to raise cash, sources familiar with the situation said.
The company hired the investment bank Blackstone Group, a top restructuring adviser, and Weil Gotshal & Manges, a leading bankruptcy law firm, industry sources said. Goldman Sachs, meanwhile, will help the company try to unload its Latin American assets, such as its investments in Brazil's Embratel and Mexico's Avantel, another source said.
In a letter sent to President Bush on Thursday and made public on Friday, Sidgmore said the company was in "close consultation" with its banks to secure additional lines of credit and funds so it can make interest payments on its $30 billion in "junk"-rated debt.
The discovery of improper accounting could prompt its lenders to demand immediate repayment of its loans, which would likely force the company into bankruptcy even though it has about $2 billion in cash on its books.
"I am proud that our own people discovered these irregularities and had the courage and professionalism to act quickly," Sidgmore said.
WorldCom discovered the problem last week during a routine internal audit. The scandal rivals the collapse of bankrupt Enron and casts further doubt on auditor Andersen, which was convicted for obstructing an Enron probe and had vetted WorldCom's books until being fired this year.
Bush, angered at relentless scandals in U.S. boardrooms and the economic fallout, said the Justice Department will hold accountable those responsible for any corporate wrongdoing.
"Corporate America has got to understand there's a higher calling than trying to fudge the numbers, try to kind of slip a billion here or a billion there and hope nobody notices," Bush said in a speech at a fund-raising event for Rep. Connie Morella, R-Md.
Bush pressed Congress to approve plans that, if enacted, would punish accounting-related abuses by banning corporate executives from profiting from erroneous financial statements. The plans were drawn up in response to the implosion last year of the Texas-based Enron.
WorldCom must provide a detailed report under oath to the SEC before the stock market opens Monday. WorldCom also must provide documents and testimony to the House Financial Services Committee and the House Energy and Commerce Committee.
The U.S. Attorney's office in Southern Mississippi said it opened an investigation into the scandal this week. Media reports said an investigation also had been started by the U.S. Attorney's office in Manhattan and a grand jury in New York had started taking testimony.
"We feel betrayed here in Mississippi. WorldCom is a homegrown, nationwide company. And now it appears folks have been betrayed and...Folks have lost their retirement income and lifetime savings," Mississippi Attorney General Michael Moore said in an interview on CNBC.
Story Copyright © 2001 ReutersLimited. All rights reserved.