RealTime IT News

WorldCom's Demise Accelerates

The condition of WorldCom Inc. became critical Tuesday, as the Securities and Exchange Commission (SEC) slammed the company's explanation of its $3.8 billion overstatement of earnings and WorldCom opened the door to the revelation of more murky accounting.

Late Monday, hours after WorldCom issued a sworn statement meant to explain how it overstated earnings by nearly $4 billion, the SEC called WorldCom's response "wholly inadequate and incomplete." Last week, the SEC ordered WorldCom to issue details of its revised financial statements and an explanation of how the overstatements occurred.

In its statement yesterday, however, the Clinton, Miss., company gave little more information about the restatement, the largest in U.S. corporate history, saying only that it improperly accounted for some expenses as capital expenditures.

SEC Chairman Harvey Pitt, already under fire for his own ties to the accounting industry, took the gloves off when expressing the SEC's displeasure. WorldCom's response "demonstrates a lack of commitment to full disclosure to investors and less than full cooperation with the Securities and Exchange Commission," he is quoted saying in a prepared statement.

The hard line taken by the SEC, which has already filed civil fraud charges against the company and its executives, bodes ill for WorldCom, which might reveal more accounting problems.

WorldCom's statement yesterday hinted that the $3.8 billion restatement announced a week ago might not be the only instance of bad bookkeeping. The telecom said its audit committee, along with accountant KPMG, would look into "certain material reversals of reserve accounts during 2000 and 1999."

That opened the way into probing how WorldCom accounted for its expenses during its acquisitions binge under the leadership of Bernie Ebbers, who resigned two months ago after the company disclosed it gave him $366 million in loans and loan guarantees to cover losses from the decline in WorldCom shares he owned.

Also yesterday, two WorldCom lenders holding credit facilities worth a total of $4.25 billion notified the company that they reserved their rights to call the loans in immediately. WorldCom said the notifications were expected, and it is in talks with the lenders to work out new loan arrangements.

The news caused an investor stampede out of WorldCom's already battered shares, sending them down to trade at just pennies a share. Nasdaq informed WorldCom that it would move to delist the company's stock on Friday, but WorldCom can request a hearing to stave off delisting.

WorldCom's CEO John Sidgmore has a press conference planned for this afternoon in Washington, D.C., as he tries to stop the spiraling crisis from unraveling the company.