The House Financial Services Committee issued subpoenas Thursday to both current and former top WorldCom Inc. officials to appear before a hearing on Capitol Hill in the wake of the latest corporate scandal to rock the markets and economy.
Among those subpoenaed to appear July 8 were Bernard J. Ebbers, the former chief executive officer of WorldCom, who was asked by the company board to step down this spring, and current CEO John W. Sidgmore.
WorldCom, which owns the nation’s No. 2 long-distance carrier MCI, announced Tuesday after the market closed that more than $3 billion of expenses in 2001 and $797 million in the first quarter of 2002 were incorrectly listed in company books as capital expenses, thus not reflected.
The Securities and Exchange Commission, meanwhile, late Wednesday filed fraud charges against the Clinton, Miss., -based firm. Chairman Harvey Pitt said the action filed in federal court in New York was also aimed at preventing the destruction of documents by WorldCom, while the SEC continues its investigation.
“Sadly, the news brings us yet another incident of accounting overreach,” said Rep. Michael G. Oxley, R-Ohio, chairman of the House Financial Services Committee. “These alleged short-term gains created by the executives are going to cause long-term pain for the WorldCom families.”
In even stronger terms, Treasury Secretary Paul O’Neill said CEOs and other company officials complicit in fraudulent accounting should go to jail.
“As the president recommended last March, the president said CEOs and CFOs should certify what is true so that shareholders and employees can’t be dumped on their head the way they are now being done at WorldCom,” said O’Neil on ABC’s “Good Morning America” program. “And Harvey (Pitt) said people are going to certify, and if they falsely certify, it’s going to be fraud and they’re going to go to jail — and we think that’s the right step.”
Congressional subpoenas were also issued to Scott Sullivan, former CFO of WorldCom; and Jack Grubman, a telecommunications analyst at Salomon Smith Barney who highly touted WorldCom shares.
The hearing continues the committee’s examination of corporate accounting problems, and their effects on employees, retirees, and investors, which first began after Enron Corp. declared the largest bankruptcy in corporate history in December.
“The WorldCom news dramatically underscores the need for legislative and regulatory reform,” Oxley said. “Problems with accounting in telecommunications are, unfortunately, damaging a key growth sector of the economy that is already facing other, steep challenges.”
Oxley noted that the collapse of WorldCom’s stock is having an impact not only on the bond and capital markets, but that investment banks with WorldCom debt exposure have taken hits on their market capitalization.
Underwriters of the debt could face liability if there was a failure of due diligence, he said.
“We are in a very difficult period, having endured attack, recession, and war,” Oxley said. “Regulatory and legislative responses are already well underway, and we need to push those forward to completion as soon as possible. I urge the full Senate to act, so that we may conference corporate responsibility legislation as soon as possible.”
Ranking Committee Member John J. LaFalce, D-N.Y., added that because of the rapid erosion of investor confidence in the markets it was necessary for Congress to “move as expeditiously as possible to get to the bottom of WorldCom and understand how corporate officers improperly manipulated the company’s financial condition to the tune of $3.8 billion, misleading investors and jeopardizing the viability of the company.”
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