A congressional hearing Monday on the WorldCom Inc. debacle opens a fast moving week in which both President George W. Bush and Congress will be tested on how they react to the explosion of corporate malfeasance that has roiled world securities markets and undercut confidence in U.S. business.
“Some of these corporate criminals need to go to jail,” Rep. Billy Tauzin, R-La., told NBC’s “Meet the Press” Sunday, “as soon as one of these major corporate leaders is indicted, confidence will generally come back.”
Tauzin’s House Energy and Commerce Committee has been investigating the high-profile bankruptcies of Enron Corp. and Global Crossing Holdings Ltd.
But Monday, attention will be focused on the House Financial Committee, where current and former executives with WorldCom have been summoned to appear. The committee is trying to determine who knew what about the company’s finances.
Among the witnesses subpoenaed to appear before the committee is former WorldCom Chief Executive Officer Bernard Ebbers, who was removed by the company’s board in April. It was still unclear whether Ebbers or even fired Chief Financial Officer Scott Sullivan would testify before the panel.
WorldCom sued Sullivan on Friday, demanding he return $10 million in bonuses.
Testimony was expected from WorldCom CEO John Sidgmore, Chairman Bert Roberts, Salomon Smith Barney telecommunications analyst Jack Grubman and Melvin Dick, a former senior partner at one time for World Com auditor Arthur Andersen LLP.
The hearings are scheduled to begin Monday at 1 p.m. EDT. Shares of WorldCom are set to open Monday at 25 cents, after gaining 3 cents, or 13.64 percent, Friday on heavy volume of 371.3 million shares traded on the Nasdaq stock market.
On June 25, WorldCom disclosed that it had improperly accounted for operating expenses as capital expenditures, thus overstating profits by $3.8 billion in the past five quarters. The Clinton, Miss., -based telecommunications giant, with its more than 60,000 employees, is now fighting to avoid bankruptcy.
Committee Chairman Michael Oxley, R-Ohio, told “Fox News Sunday” that he didn’t think the problem of corporations falsifying their financial reports was as widespread as some have suggested, “but clearly there’s some real problems here.”
On April 24, the House, by a vote of 334 to 90, passed legislation co-authored by Oxley designed to establish a new oversight board for the accounting industry. The Corporate and Auditing Accountability, Responsibility, and Transparency Act also increases the amount of real-time financial information that must be disclosed to investors, and boosts enforcement funding for the Securities and Exchange Commission.
The Senate has not yet voted on companion legislation.
At the center of the controversy is whether SEC Harvey Pitt took sufficient action over the past year to discipline corporate troublemakers and whether he can now move effectively to restore corporate governance.
Arizona Republican Sen. John McCain is expected Thursday to call for Pitt’s resignation, according to media reports.
Senate Majority Leader Tom Daschle, D-S.D., Sunday called Pitt “a huge disappointment” and said that “we could do a lot better than Harvey Pitt in that position today.” He said that Pitt’s “cozy, permissive relationship” with business has to end and criticized the entire Bush Administration for being to close to powerful corporations.
“We’ve seen this from top to bottom,” Daschle told “Face the Nation” on CBS.
All this presents Bush with tricky problems. The president has scheduled a major address on Wall Street Tuesday, which the White House said is designed to restore confidence in American business and the U.S. economy. Bush is enjoying a brief Fourth of July holiday at the family compound in Kennebunkport, Maine, and no details of his forthcoming speech have been released. White House spokesman Ari Fleischer, however, said Bush favored jail for executives that blatantly violate disclosure laws or “cook the books” of their companies.
Sen. Paul Sarbanes, D-Md., told ABC’s “This Week” program that all the focus should not be on jailing executives. “But what also ought to happen is we ought to improve the system to prevent these things from happening.”
Sarbanes is the author of a bill that with the new momentum of the WorldCom crisis could reach the Senate floor this week. It would create an oversight board for accountants, crack down on insider trading and close several loopholes in current securities laws that allowed situations like the Enron collapse to happen.
Sarbanes and several other Republicans and Democrats introduced bills to correct problems last spring as the Enron bankruptcy unfolded, but massive lobbying by the accountant firms and other businesses diffused political support for the measures.