Invoking his Fifth Amendment right, WorldCom’s former chief executive officer refused to answer questions Monday from a congressional panel investigating nearly $4 billion in accounting irregularities at the telecommunications giant.
“I do not believe I have anything to hide in these or any other proceedings,” Bernard J. Ebbers told the House Financial Services Committee. He said he’d been advised by his Washington attorney, Reid Weingarten, to remain silent because of the range of investigations by the Justice Department and Securities and Exchange Commission.
WorldCom’s former chief financial officer, Scott Sullivan, also refused to testify, “based upon the advice of counsel.”
John Sidgmore, WorldCom’s president and chief executive officer, blamed the company’s former management for the accounting problems.
“WorldCom uncovered this problem internally,” Sidgmore said in prepared testimony. “The kind of initiative demonstrated by our internal audit group is to be applauded and will continue to be encouraged.”
WorldCom Chairman Bert Roberts called the accounting improprieties “an outrage to me,” and said auditor Arthur Andersen was responsible. “To my mind, the failure of our outside auditors to uncover them is inconceivable,” he said.
Melvin Dick, the senior Andersen audit partner for WorldCom, testified that neither he nor any member of the Andersen team “had any inkling” of the improper accounting.
WorldCom is the latest major corporation to face allegations of executive wrongdoing and accounting irregularities — driving down public confidence in business and the stock market. Congress already is investigating the bankruptcies of Enron Corp. and telecommunications company Global Crossing and the role played by accounting firms. Andersen has been convicted of obstruction of justice for destroying Enron-related documents.
In an attempt to boost sagging investor confidence, President Bush is proposing tougher penalties — including jail time — for corporate officials who lie on financial statements, an administration official said Monday.
The White House planned on Monday to formally endorse the goals — but not all the details — of legislation introduced by Sen. Paul Sarbanes, D-Md., that would tighten oversight of the accounting industry. The administration wants to empower the SEC to ban corporate executives and directors who commit wrongdoing from serving in those roles again, a step the bill does not take.
WorldCom, whose interests include No. 2 long-distance telephone company MCI, is battling to avoid bankruptcy after disclosing that it disguised $3.9 billion of expenses as capital expenditures to appear more profitable.
The Securities and Exchange Commission has filed a civil fraud suit against WorldCom, and the Nasdaq Stock Market plans to delist the company’s shares, which have plunged from more than $63 in June 1999 to 22 cents Monday.
Wall Street analyst Jack Grubman, who had promoted WorldCom stock, said in testimony prepared for the hearing, “I regret that I was wrong in rating WorldCom highly for too long” but insisted he was unaware of the company’s true financial condition.
Grubman also insisted he had no advance knowledge of the huge earnings misstatement before downgrading his recommendation for WorldCom stock on June 21.
The Business Roundtable, a group of chief executive officers of major corporations, said it was “appalled, angered and, finally, alarmed at the stream of revelations which have emerged.”
“Where there have been violations of law, we believe that the violators should be prosecuted — promptly and to the fullest extent possible,” the CEOs said in a statement. They also endorsed the SEC’s new requirement that chief executives and chief financial officers certify that their company financial statements are accurate, as well as legislation before the Senate this week to tighten oversight of the accounting industry.
The House committee chairman, Rep. Michael Oxley, R-Ohio, said that of all the companies in the recent wave of corporate scandals, “none has yet shown the audacity to commit fraud on the scale that has been alleged here.”
The panel’s ranking Democrat, Rep. John LaFalce of New York, said he hopes “President Bush after a year and a half … will finally join with us in trying to effectuate these reforms.”
The president on Tuesday is expected to recommend new criminal penalties for corporate officers who lie on financial statements, something that Bush believes should draw jail time, White House spokesman Ari Fleischer has said.
A string of lawmakers, from Senate Majority Leader Tom Daschle, D-S.D., to Rep. Barney Frank,D-Mass., and Sen. John McCain, R-Ariz., are calling for the resignation of SEC Chairman Harvey Pitt, in part because of his former ties to the accounting profession.
“There is now some question” about whether Pitt is the right person to the head the SEC, said Rep. Spencer Bachus, R-Ala.
The White House stood behind Pitt. Fleischer said that under the chairman, the SEC has acted aggressively against wrongdoers and that accusations against him were “without merit.”