hopes for avoiding bankruptcy grew
dimmer Wednesday, when the company was hit with federal fraud charges.
The Securities and Exchange Commission (SEC), acting with speed in the face
of what appears to be the largest of the accounting scandals to hit American
business in the last nine months, formally charged the telecom company and
its execs with cooking its books to meet Wall Street expectations and goose
its stock price. The SEC said the fraud pumped up WorldCom’s earnings by $3
billion in 2001 and $797 million in the first quarter of 2002.
The fraud charges, filed in a civil suit in a Manhattan federal court, came
just a day after WorldCom’s bombshell
admission that it had overstated its cash flow by $3.8 billion over the
last five quarters. The SEC had already begun an investigation into Clinton,
Miss., company’s accounting in February.
The SEC also ordered WorldCom to provide details of its revised financial
statements by Monday, along with an explanation of how they came about.
With WorldCom’s future in doubt, its customers have scrambled to find safer
alternatives in an industry beset by questions about the accuracy of its
financial reporting. Global Crossing retreated into Chapter 11 protection in January, amidst questions about its
dealings with Enron. Former up-and-comer Qwest Communications has
teetered under federal probes and high debt. The SEC is probing the
company’s accounting, while its chief executive, Joseph Nacchio, resigned
Reacting to the plummeting confidence in U.S. businesses in the face of the
spate of accounting scandals, SEC Chairman Harvey Pitt ordered the CEOs of
the largest publicly traded companies to publicly state their confidence in
their earnings statements.
Sprint executives this morning came out with a statement this morning that
the company had no off-balance sheet liabilities or accounting problems. The
telecom also touted that it is not under SEC investigation.
Giga Information Group analyst Lisa Pierce said companies looking for
stability in the telecom market have few places to turn, but Sprint and AT&T
would most likely be seen as having a more solid foundation.
“It’s all relative,” she said. “Sprint’s finances have suffered the least.”
WorldCom was due to begin its first moves to salvage its business tomorrow,
when it is to begin laying off 17,000 of its 85,000 employees.