RealTime IT News

WorldCom's Restatement Reaches $9 Billion

The Securities and Exchange Commission has expanded its civil fraud complaints against bankrupt telecommunications firm WorldCom after it said it might have to restate about $9 billion in revenue.

In a statement Tuesday, WorldCom said as a result of settlement discussions with the SEC regarding fraud complaints, it planned to restate about $9 billion in revenue.

The Jackson, Miss.-based carrier said it told the SEC it came up with the latest figure "based on very preliminary reviews" and that it is continuing to finalize its review of accounting practices.

The SEC immediately added more fraud charges against WorldCom, which it first leveled against the telco in June after WorldCom revealed it had overstated close to $4 billion in revenues. The latest amended complaint charges that WorldCom violated laws regarding record-keeping. Filed in federal district court in New York Tuesday, it also broadens its charge that WorldCom misled investors from at least as early as 1999 through the first quarter of 2002.

For a case already among the most notorious of accounting scandals roiling markets and investors in the past year, the latest restatement amount left some analysts shaking their heads in disbelief.

"Maybe after all is said and done we'll find out they only had about 40 cents in revenue," said Allan Tumolillo, chief information officer of telecommunications analysis firm Probe Research.

It appears, he said, that company officials "committed fraud on such a scale, somebody ought to go to jail. That (regulators) are finding more stuff is just another indication this is a corrupt organization."

He also called for an end to settlement talks between WorldCom and the SEC, given the scope of the questionable accounting. "The scale of these problems is so large, I don't see why the SEC should just make them promise they won't do this again, or say they're enjoined from violating SEC laws. Everybody's enjoined from violating SEC laws."

WorldCom's bankruptcy filing in July, after its first round of revealing accounting errors and misstatements, ranks it as the largest in corporate history.

Two WorldCom officials, former controller David Myers and former CFO Scott Sullivan, are facing federal criminal charges of falsifying the company's balance sheets in order to allegedly hide $3.8 billion in expenses. Myers has pleaded guilty to securities fraud charges. Two other former WorldCom officials have also pleaded guilty to fraud and conspiracy charges related to attempts to cover up about $7 billion in expenses. The Justice Department's criminal investigation of WorldCom is also ongoing.

In addition, a federal bankruptcy court examiner recently reported that WorldCom took "illegal steps" to gloss over its deteriorating finances and estimated that accounting fraud as a result exceeded the $7 billion that investors already know about.

WorldCom said the $9 billion restatement estimate would not impact its ability to "provide service to its customers nor on its ability to emerge from bankruptcy protection, which it expects to take place in mid-2003."

The company said it still has about $1 billion in cash and is operating with debtor-in-possession financing of $1.1 billion, which it has not yet drawn upon.