WorldCom Charges Broadened
Accounting Scandal Jumps To $9B, According To New Fraud Filing From SECNov 5, 2002 | CNN/Money
The Securities and Exchange Commission has broadened its charges against bankrupt WorldCom Tuesday, alleging new fraud and a vast expansion of the accounting mistakes.
The charges, filed in Manhattan Federal District Court, state that WorldCom engaged in fraud in connection with securities offerings and violated internal controls as well as books and records rules.
The SEC says WorldCom, the No 2 long-distance provider, has acknowledged overstating income by about $9 billion, more than a billion dollars above the amount WorldCom has already restated.
Sources familiar with the case say there will not be a settlement of the charges announced this week, though they say the two sides did hold a conference call with Judge Jed Rackoff Monday evening.
The SEC also is denying reports that it will ask for a dismissal of charges.
"Despite today's press reports to the contrary, the commission has no intention of seeking the dismissal of its fraud charge or any of its other claims against WorldCom," said Peter Bresenan, SEC deputy chief litigation counsel.
On June 27 the SEC charged WorldCom with "massive accounting fraud."
The civil complaint charges WorldCom with violating anti-fraud and reporting provisions of the federal securities law.
The SEC's complaint seeks to permanently enjoin WorldCom from further violations of securities law, impose monetary penalties and prohibit WorldCom from making any extraordinary payments to present or former employees.
WorldCom had no comment.
While the parties may be moving toward resolution of the civil charges against WorldCom, the Justice Department is continuing its criminal investigation.
"We have not indicated in any manner that we are winding down," said Justice spokesperson Brian Sierra.
Both the Wall Street Journal and New York Times Tuesday reported that the SEC was in talks with WorldCom about settling fraud charges filed against the bankrupt telecommunications company.
A settlement would clear a hurdle for WorldCom, which hopes to emerge next year from a record-setting bankruptcy that followed a $7 billion accounting scandal.
A handful of mid-level executives at Clinton, Miss.-based WorldCom have pleaded guilty to charges related to the accounting scandal. Ex-Chief Financial Officer Scott Sullivan has maintained his innocence and is expected to go to trial on charges of securities fraud, conspiracy to commit fraud, and filing false statements with the SEC.
The company faces other problems, including lawsuits by investors trying to recover losses.
Separately, U.S. Attorney General Richard Thornburgh, the court-appointed independent examiner of WorldCom, said Monday that the company had a "harmful" corporate culture and "enough blame to go around" for the firm's collapse, ranging from executives and the board of directors to auditors and financial analysts.
Thornburgh filed his 118-page report Monday with the U.S. Bankruptcy Court detailing "extraordinary and illegal steps" used to manipulate WorldCom financial records.
WorldCom first disclosed an accounting problem June 25, when it said it would have to restate about $3.8 billion in expenses from the previous five quarters. It later said it hid some $7 billion in expenses and filed the biggest bankruptcy in history in July.