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WorldCom Steps Up Damage Control

WorldCom executives continued to play damage control yesterday, seeking to distance the company's current management from the past accounting irregularities that led to last month's $3.8 billion restatement of earnings.

In testimony before the House Financial Services Committee on Monday, WorldCom CEO John Sidgmore sought to put distance between WorldCom's current top management and the actions of longtime WorldCom chief executive Bernie Ebbers and former chief financial officer Scott Sullivan.

"We are fighting for our life," Sidgmore told the committee. He said the company continued to investigate the accounting irregularities going back the last year and half, in addition to looking at transactions in 1999 and 2000. Sidgmore reiterated the company hoped to avoid a bankruptcy filing, but he declined to rule one out.

Sidgmore said he did not find out about the accounting problems until June 20. He took over as chief executive in April, following Ebbers' resignation after revelations he owed the company $366 million in personal loans.

The company also filed a revised statement with the Securities and Exchange Commission Monday afternoon, detailing how the $3.8 billion restatement came about. A week ago, the SEC slammed the company's initial explanation as "wholly inadequate and incomplete."

While stressing that it is awaiting the results of an internal investigation headed by former SEC enforcement head William McLucas, WorldCom continued to lay the responsibility for the company's accounting practices at the feet of Sullivan, Ebbers, former controller David Meyers, and star-crossed auditor Arthur Andersen.

WorldCom said Andersen gave its accounting methods a clean bill of health as recently as Feb. 6, 2002, reporting it had "no disagreements with management and that there were no accounting positions taken by the company with which Andersen was not comfortable."

WorldCom's filing came on the eve of President Bush's long-awaited speech on corporate responsibility, as the company has displaced Enron as the poster child for bad business behavior.

Bush is expected to call for a raft of tighter laws on executive compensation and corporate disclosure, including a provision doubling the jail sentence for wire and mail fraud to 10 years.

In its SEC statement, WorldCom said the accounting problems were discovered by Cynthia Cooper, the company's vice president of internal audit, who began an investigation of WorldCom's bookkeeping of capital expenditures, which eventually led to the earnings restatement.

Cooper spoke with Sullivan and Myers about her concerns on June 11, according to the company, but Sullivan asked her to delay a full-blown audit until the third quarter.

Sullivan and Ebbers, both of whom were called to testify before the House committee, declined to testify yesterday, invoking their Fifth Amendment rights against self-incrimination.

Before invoking his rights, however, Ebbers made a brief assertion of innocence.

"I believe that no one will conclude that I engaged in any criminal or fraudulent conduct during my tenure at WorldCom," he said. "I am proud of the work that I did at WorldCom."