WorldCom Inc.’s chief, John Sidgmore, offered a defense of the embattled telecom giant Tuesday as the company’s problems continued to build, including federal fraud charges, congressional hearings, stock delisting and potential bankruptcy.
Sidgmore said WorldCom was working closely with banks to avoid the immediate specter of bankruptcy and was “fully cooperating” with various investigations of the company’s almost $4 billion in financial misstatements.
Offering an admission of company guilt, Sidgmore also separated himself and current WorldCom management from the company’s former chief financial officer Scott Sullivan, fired last week, and former chief executive officer Bernard Ebbers, who was pushed out by the company’s board of directors in April.
“In the days following the WorldCom’s announcement that we misstated earnings for the past five quarters, there’s been an understandable outpouring of outrage and anger expressed from every quarter of American society,” Sidgmore said at a news conference at the National Press Club. “I want to underscore that WorldCom’s new management team — and our more than 60,000 employees — are equally shocked by these events.”
Last week, WorldCom stunned an already fragile Wall Street with the announcement it had overstated earnings by $3.8 billion, which prompted the Securities and Exchange Commission to file fraud charges against the telecom giant.
The SEC’s legal maneuver was followed by the Justice Department launching its own investigation and plans by two congressional committees to hold hearings after the Fourth of July holiday recess.
At issue is WorldCom’s booking of operational expenses on the capital accounts side of the company balance sheet for 2001 and the first quarter of 2002, which had the effect of massively inflating cash flow and earnings.
“About two months ago, I agreed to take over as CEO of WorldCom. Even then we faced significant challenges; but I never imagined what was in store for us,” said Sidgmore of the June discovery by company internal auditors of the financial misstatements. “I am responsible for what we do now. And what we’re going to do is fully investigate past transgressions … We are cooperating with the various investigations … to bring those responsible to justice.”
Sidgmore said that he had met Tuesday morning with SEC Chairman Harvey Pitt for what he termed as “an extensive and productive discussion.”
Also, Sidgmore said the company has hired former SEC official William McLucas, previously the head of the agency’s enforcement division, to act an in independent investigator of the company.
Pitt has increasingly indicated that those responsible for WorldCom’s financial malfeasances should face jail terms. In a short statement Monday he blasted the company’s sworn report delivered to the securities watchdog agency that same day.
“WorldCom’s statement is wholly inadequate and incomplete,” said Pitt in a brief statement. “It demonstrates a lack of commitment to full disclosure to investors and less than full cooperation with the SEC.”
On Capitol Hill, the House Financial Services Committee, which issued subpoenas Thursday to both current and former top WorldCom officials and the House Energy and Commerce Committee, which has called on WorldCom to turn over various financial records dating back to 1997, scheduled hearings to be held after the recess.
Among those subpoenaed to appear July 8 were Ebbers, who was asked by the company’s board to step down this spring, and Sidgmore.
In separate letters sent to Pitt and Sidgmore, Sen. Chuck Grassley, R-Iowa, urged the commission and WorldCom to provide details of the millions of dollars of bonuses that reports say top company executives received before the firm’s collapse.
“It’s critical that WorldCom’s new management, its creditors, the government and the courts work together to get this company back on its feet,” said Grassley, ranking member of the Senate Finance Committee.
He also asked the SEC and WorldCom’s Sidgmore to provide him a list of all senior managers who received more than $100,000 in bonuses in the past three years.
“I think that managers who knew, or should have known, about the accounting gimmicks and deceptions should have returned that money to help keep WorldCom viable,” he said.
When asked about Grassley’s letter Tuesday, Sidgmore declined comment.
The SEC filed fraud charges Wednesday against the Clinton, Miss., -based firm. Pitt told reporters the action filed in federal court in New York was aimed at preventing the destruction of documents by WorldCom while the agency continues its investigation.
Congressional subpoenas were also issued to Sullivan and to Jack Grubman, a telecommunications analyst at Salomon Smith Barney who highly touted WorldCom shares.