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SEC Adds More WorldCom Charges

Nov 6, 2002 | AP

The government expanded its civil fraud charges against WorldCom Inc. as the company raised its estimate of inflated earnings to more than $9 billion in one of the most stunning accounting scandals of the past year.

The Securities and Exchange Commission announced Tuesday that it had broadened the scope of its charges, originally filed against the giant telecommunications company in June, to include an additional charge and allege that WorldCom misled investors starting at least as early as 1999 through the first quarter of this year.

WorldCom, the nation's second-largest long-distance carrier, is in settlement talks with the SEC.

The company, which is operating under bankruptcy court protection, said it told the SEC during those discussions that, based on "very preliminary reviews" of its accounting, it expects an additional earnings restatement that could bring the total hole in its books to more than $9 billion.

An SEC official said Tuesday there were no plans to drop any of the fraud charges against the company as part of a settlement deal, which must ultimately be approved by the federal judge in New York City presiding over the case.

"There is no possible way that any settlement with WorldCom would involve dismissal of our fraud claims or any of our other claims against WorldCom," said Peter Bresnan, deputy chief litigation counsel in the SEC's enforcement division.

WorldCom announced $4 billion in financial misstatements in late June, shocking a market already buffeted by the revelations of accounting irregularities at Enron Corp. The news also sent the company's once high-flying stock plummeting below 10 cents a share. The $4 billion estimate was later raised to around $7 billion.

WorldCom took pains Tuesday to reassure customers that the additional restatements "have no impact on its ability to continue to provide service" or to emerge from bankruptcy protection, which it expects to do in mid-2003.

In a statement, it said it still has more than $1 billion in cash and access to untapped credit of $1.1 billion.

While the SEC has pursued civil fraud charges against WorldCom and several former top executives, the Justice Department (news - web sites) has been conducting a parallel investigation and has recently brought criminal charges against company executives.

The company's former controller, David Myers, and its former chief financial officer, Scott Sullivan, were arrested in August. Prosecutors alleged the two directed employees to falsify balance sheets to hide more than $3.8 billion in expenses, causing WorldCom earnings to be overstated by $5 billion.

Myers pleaded guilty in federal court in September. Sullivan has denied any wrongdoing.

Three other WorldCom executives have pleaded guilty to similar federal charges. They are expected to provide evidence against Sullivan.

Clinton, Miss.-based WorldCom, which owns MCI Communications, is second only to AT&T in the long-distance market. It also has considerable Internet holdings. As of July, it had laid off 17,000 of its 80,000 workers.

The new charge added by the SEC on Tuesday alleges civil fraud in connection with public offerings of WorldCom securities during the time of the alleged accounting violations.

The SEC also added new allegations that WorldCom violated federal securities laws governing internal financial controls and record-keeping.

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