NEW YORK (AP) - A former WorldCom executive pleaded guilty Monday to securities fraud and conspiracy and agreed to cooperate with investigators against his bosses in one of the largest cases of corporate accounting fraud in U.S. history. 

Buford Yates said in federal court that he was instructed by supervisors to misreport expenses. 

Yates, 46, served as WorldCom's director of general accounting. Prosecutors say he carried out orders by chief financial officer Scott Sullivan to hide $3.8 billion in expenses in order to make the telecommunications giant appear profitable. 

Yates told U.S. Magistrate Judge Andrew J. Peck in Manhattan that he knew the wrong information would be reported to the Securities and Exchange Commission (news - web sites) and relayed to the public. Peck said he would recommend that a federal judge accept the plea. 

Sentencing was set for Jan. 9. Yates faces 10 years in prison on the conspiracy charge and a $1 million fine. 

Yates, of Brandon, Miss. was the second executive at the company to plead guilty in the case. 

David Myers, WorldCom's ex-controller, pleaded guilty in September to securities fraud, saying he was instructed by senior management to falsify ledgers.

Two other accounting executives who worked directly under Yates are expected to plead guilty as part of cooperation deals with authorities, according to court papers. 

Prosecutors say the executives, Betty Vinson and Troy Normand, carried out orders from Sullivan and Myers to hide the $3.8 billion in operating expenses as capital expenses. 

"Sullivan, Yates, and their co-conspirators were able to assure that WorldCom's reported earnings exceeded its actual earnings for the period from October 2000 through April 2002 by approximately $5 billion," the indictment said. 

"As Sullivan, Myers, Yates, Vinson, and Normand well knew, there was no justification in fact or under generally accepted accounting principles for these entries," it said. 

Since the accounting mess first came to light, WorldCom officials have said roughly $7 billion was misreported, and reports have pinned the final figure as high as $9 billion. 

Sullivan, who is free on $10 million bond, has maintained his innocence. He is under increasing pressure to cooperate after the actions taken by Yates and Myers, and the expected pleas by Vinson and Normand. 

Sullivan's lawyer, Irv Nathan, has said his client is a victim of a "rush to judgment." 

Prosecutors are trying to determine what former CEO Bernard Ebbers knew about the illegal accounting tricks. 

Ebbers has not been charged with a crime and has denied any knowledge of the misdeeds.

By JIM KRANE
Associated Press

October 1, 2002

NEW YORK -- In a move aimed at shoring up the morale of its remaining workers, bankrupt telecom WorldCom Inc. won court permission Tuesday to hand $36 million in severance payments to laid-off employees.

The ruling, in U.S. Bankruptcy Court in Manhattan, also allows WorldCom, based in Clinton, Miss., to retract $1.4 million in severance payments promised to 19 laid-off company executives before the company filed for bankruptcy in July as a multibillion-dollar accounting scandal unwound.

In lieu of the lucrative settlements, the 19 will receive the same package as the rank-and-file workers: up to 26 weeks' in salary and benefits.

The decision allows each of some 4,000 laid-off workers to receive an average of $9,000 apiece to supplement the $4,650 WorldCom already paid.

In the four months before filing for bankruptcy on July 21, WorldCom laid off or said it would fire 12,800 people. The company since has said it would raise the total to 17,000.

It is unclear whether WorldCom will offer, or the court will approve, identical severance payments to other current or former workers.

WorldCom owns the nation's No. 2 long-distance carrier, MCI Communications Corp., which has a call center operation in Hunt Valley. At least 780 workers were laid off there.

In New York, Marcia Goldstein, WorldCom's attorney, urged U.S. Bankruptcy Judge Arthur Gonzalez to approve the payments. They would allow, she said, WorldCom to "restore the confidence of its employees, whose cooperation and continued loyalty are essential."

With WorldCom in Chapter 11 bankruptcy proceedings, in the biggest such case in U.S. history, the court must approve virtually every dollar the company spends and hear objections from creditors.

Attorneys for all creditors but one, carrier Broadwing Inc., agreed to WorldCom's severance proposal.

Also Tuesday, Gonzalez granted WorldCom permission to seek a better price for its office space at Pentagon City, in Northern Virginia just outside Washington D.C., than the $101 million offered by real estate firm Tishman-Speyer Properties Inc. 

Copyright 2002 Associated Press

Ex-WorldCom controller pleads guilty Myers, in case's first admission of guilt, says he was instructed by `senior management' to carry out fraud By Devlin Barrett The Associated Press September 26, 2002, 6:24 PM EDT

Former controller David Myers surrenders (AP/Louis Lanzano)

It was the first admission of guilt in the multibillion dollar scandal.

David Myers, 44, entered the plea in U.S. District Court in Manhattan after telling Judge Richard Casey that he wanted to waive his right to be indicted on the charges.

"I was instructed on a quarterly basis by senior management to ensure that entries were made to falsify WorldCom's books to reduce WorldCom's reported actual costs and therefore to increase WorldCom's reported earnings," Myers told the judge.

"I combined with others ... to assist in the commission of fraud," said the former executive.

Casey asked the defendant if he had committed the three crimes spelled out in court papers: conspiracy, securities fraud, and making false filings to the Securities and Exchange Commission.

"Yes, sir, I did," Myers answered.

Outside court, Myers' lawyer, Richard Janis, called his client "a reluctant participant" who had "expressed his discomfort and displeasure with the actions being undertaken by WorldCom."

WorldCom, based in Clinton, Miss., became the biggest corporate bankruptcy in U.S. history on July 21. The company owns the nation's No. 2 long-distance telephone company, MCI Communications Corp., which has a call center in Hunt Valley.

In June, Myers told WorldCom accountants that the company "could not continue with the cost structure at the current levels and that if the cost structure did not change, the company `might as well shut the doors,'" prosecutors said in court papers.

Myers and Scott D. Sullivan, the former chief financial officer at WorldCom, were arrested in August. Myers has been free on $2 million bond; Sullivan signed a $10 million bond.

Prosecutors say they directed employees to falsify balance sheets to hide more than $3.8 billion in expenses, causing WorldCom earnings to be overstated by an even greater amount.

The deception enabled WorldCom to report a profit when it was actually losing money, according to regulators.

Myers is now cooperating with the authorities against his former bosses, and has also agreed to plead guilty in Mississippi as early as next week to a single charge stemming from the same corporate swindle, Janis said.

His client was also negotiating with the SEC to resolve civil charges filed Thursday, the lawyer said.

The SEC alleged that Myers "participated in a massive fraud that inflated the company's earnings at the direction and with the knowledge of WorldCom's senior management."

The agency is seeking a permanent injunction against Myers as well as civil money penalties, repayment of allegedly ill-gotten gains and an order barring him from serving as an officer or director of a publicly traded company.

Prosecutors say the massive fraud began when Myers and Sullivan ordered WorldCom accounting executives Buford Yates, Betty Vinson and Troy Normand to record billions in operating expenses as capital expenses.

Myers faces up to 10 years on the most serious charge of filing false reports with the SEC.

Vinson and Normand are also expected to plead guilty as part of cooperation agreements with prosecutors, according to court papers filed earlier. They have yet to appear in court.

Sullivan was indicted in late August along with Yates on securities fraud charges. At their arraignment, prosecutors said they would seek additional charges and may name new suspects in the case.

The cooperation of Myers and others increases the pressure on Sullivan to strike a deal with prosecutors and tell them what, if anything, former WorldCom CEO Bernard Ebbers knew about the alleged accounting crimes.

Sullivan's lawyer, Irv Nathan, has said his client is "an honorable and honest man" victimized by a rush to judgment.

Ebbers' lawyer has said he knew nothing about any misreporting.

Since the fraud first came to light, WorldCom officials have revised the amount of accounting improprieties up to $7.1 billion, and recent reports said the final total may reach $9 billion. 

Copyright 2002 Associated Press 

Former WorldCom Chief Financial Officer Scott Sullivan on Wednesday was indicted on several charges.  Ex-WorldCom CFO indicted Scott Sullivan charged with conspiracy to commit fraud, making false statements By Brock N. Meeks MSNBC Aug  28, 2002 —  WorldCom’s former chief financial officer was indicted Wednesday on fraud and conspiracy charges stemming from what prosecutors believe is his central role in masterminding an accounting scheme that concealed billions in costs and artificially inflated revenues for the now-bankrupt telecom giant. The papers filed Wednesday also strongly indicate that former WorldCom controller David Myers has cut a deal with prosecutors and is willing to cooperate with its case against Sullivan and possibly others.

       “With each arrest, indictment and prosecution, we send this clear message: Corrupt corporate executives will be punished,” said Attorney General John Ashcroft in a statement. “The Department of Justice is committed to ensuring that corporate executives never profit by victimizing their own employees and investors.” 

       Sullivan’s attorney did not return a call for comment.
       Buford Yates, the company’s former director of general accounting, was also named a defendant. Accounting executives Betty Vinson and Troy Norman were listed as unindicted co-conspirators as was Myers. Sullivan apparently ordered his subordinates to cook the books in order to hide billions in costs; a move that made had the direct effect of bolstering the company’s bottom line figures.
       Yates has surfaced in the investigation only as a fringe player. It’s a given that Sullivan is a key figure, said Stephen Ryan, a former federal prosecutor and currently a partner at Manatt, Phelps & Phillips in Washington, D.C., “but the question is why is Yates indicted at the same level as Scott Sullivan? The answer is: I don’t know.”

Ryan noted that in a conspiracy case it’s always advantageous to charge as many people as possible; the move to elevate Yates’ profile in the case also might be a pressure tactic to get him to cut a deal, Ryan said.

        The naming of unindicted co-conspirators also is “an unusual move,” said Christopher Bebel, a former federal prosecutor and now a principle of Shepherd, Smith & Bebel, a Houston-based law firm. The move “is very aggressive lawyering,” Bebel said, “but it’s going to ratchet up the pressure on them and increase the likelihood that they’ll cooperate with the government,” he said.

MYERS FLIPPED
       Federal prosecutors also said Wednesday that they planned to file criminal information against Myers owing to his waiver of the right to be indicted by a grand jury. 
       “That means he’s going to cooperate” with the investigation, Bebel said. Sources close to the probe previously said that Myers was close to cutting deal. By waiving his right to a grand jury indictment, Myers is “going to allow the U.S. attorney’s office alone to decide what the charges should be,” Bebel said. 

The filing of “criminal information against [Myers] will reflect the same phraseology as an indictment would as far as the substance of the charges and then the plea agreement would be presented to the court,” Bebel said. “It’s a done deal.”
       A spokesman for the Manhattan U.S. attorney’s office would not comment.
       Myers worked directly for Sullivan and sources say he can provide a step-by-step outline of how the former WorldCom CFO deliberately set about to defraud the Securities and Exchange Commission by shifting costs to improve the company’s bottom line.

        Myers was further implicated in the accounting scheme on Monday when the House Financial Services Committee released e-mails that showed him threatening a subordinate that had been asking questions about some shady accounting moves requested by Sullivan. 

BIGGEST FISH TO FRY
       Above the fray, so far, is the former flamboyant CEO Bernie Ebbers. Ebbers steadfastly maintained his innocence and disavowed any knowledge of bookkeeping irregularities during a brief, but belligerent, statement during a recent congressional hearing in which he invoked his constitutional right against self-incrimination. 
       Ebbers hasn’t yet been named in any complaint and it’s not clear that he ever will be. But it’s hard to believe that the man at the helm of the company had no knowledge whatsoever of what was happening and that’s what prosecutors are seeking to determine, said former prosecutor Ryan. 

         And it’s not inconceivable that the feds would cut a deal with Ebbers himself, Ryan said.
       “Anyone that wants to cut a deal you cut a deal with them,” Ryan said. “You may not make that deal as attractive or beneficial to them as you might for a lower level official,” he said. 
       Ryan notes that nine out of ten cases are resolved by plea bargain. “The system counts on it,” he said, “so even a CEO of a company is someone you may agree to a deal with, it just may not be as good as it would be for a lower-level official.”

STORY SOURCE: :MSNBC

August 9, 2002

NEW YORK - WorldCom Inc., which sought bankruptcy protection last month after disclosing that it had improperly accounted for $3.8 billion in recent expenses, said last night that it had uncovered $3.3 billion in additional accounting irregularities stretching back to 1999.

The company, parent of MCI, the nation's second-largest long-distance company and a major operator of the Internet, also said the new irregularities would force revisions in its accounting for 2000, last year and the first quarter of this year.

WorldCom also said that when the earnings are restated, it will further reduce the reported value of it assets by as much as $50.6 billion.

"We knew the problem was a lot bigger than WorldCom first admitted," Ken Johnson, a spokesman for the House Energy and Commerce Committee, said before the company released its statement. "The extent of the fraud is staggering."

The new disclosures include more instances of operating expenses being improperly classified as capital investments, the main violation of commonly accepted accounting practices previously disclosed, said an executive close to the audits.

But the major new twist, the executive said, involved reserves that WorldCom set up to cover uncollected payments from customers, judgments in lawsuits and other potential losses.

Companies that establish large reserves report them as a one-time charge against earnings, a practice that can be abused to create the accounting equivalent of a slush fund. When the company needs to lift reported operating profits in a quarter where it is in danger of falling short of Wall Street's expectation, it can transfer the necessary sums from the inflated reserve.

Such earnings management became an accepted practice in the 1990s.

Executives justified it as a way to smooth out earnings, protecting investors from volatility.

Critics such as Arthur Levitt, a former chairman of the Securities and Exchange Commission who argued that the growing use of "rainy day reserves" distorted financial reporting, were largely ignored.

WorldCom apparently resorted to such accounting on a huge scale during the time when Bernard J. Ebbers was chairman and chief executive, Scott D. Sullivan was his chief financial officer and David Myers was the company's controller.

Last week, Sullivan and Myers were arrested and charged with hiding nearly $4 billion in expenses and lying to investors and regulators in a desperate bid to keep the company afloat.

Myers, accompanied by his attorney, N. Richard Janis, met yesterday with Richard Owens, head of U.S. Attorney James Comey's white-collar fraud unit, in Lower Manhattan.

Myers is negotiating with prosecutors over a guilty plea that would require his cooperation in the government's investigation, said law enforcement officials who spoke on condition of anonymity.

The federal criminal complaint against Sullivan and Myers says Sullivan ordered the controller to direct employees to make bogus accounting entries.

St. John's University law professor Michael Perino said of Myers' negotiations: "One possibility is he's making what's called a proffer - he's indicating to the government what information he has.

"And that information could be about people who haven't been indicted. It's hard to imagine what else it could be."

Authorities are also investigating Ebbers, who owed WorldCom $408 million when he quit in April.

Reid Weingarten, an attorney for Ebbers, didn't immediately return a call seeking comment. Nor did Sullivan's defense lawyer, Irvin Nathan.

Janis and Comey declined to comment on the purpose of yesterday's meeting. "We wouldn't and shouldn't comment," Janis told Bloomberg News.

Attorney General John Ashcroft said last week that the alleged Sullivan-Myers scheme was designed to conceal five straight quarterly net losses and create the illusion that the company was profitable.

He said the investigation is continuing. 
Copyright © 2002, The Baltimore Sun

N E W   Y O R K, Aug. 8 — Bankrupt telecommunications firm WorldCom Inc. said Thursday it uncovered another $3.3 billion in bogus accounting, adding to the $3.85 billion fraud it revealed in June.

The newest discovery was made as the company reviewed its books for 1999 and 2000, with most of it tallied in 2000, the Clinton, Miss.-based company said Thursday night.

As a result of the finding, WorldCom will restate its financial statements for all of 2000. The company, which filed for the largest corporate bankruptcy in U.S. history, already said it would restate its financials for all of 2001 and the first quarter of 2002.

Last week, two former executives chief financial officer Scott Sullivan and controller David Myers were arrested and charged with hiding the nearly $4 billion in expenses and lying to investors and regulators in a desperate bid to keep the company afloat.

The fraudulent accounting already revealed occurred in 2001 and the first half of 2002. The additional fraud in 1999 and 2000 would bring the total of phony accounting at WorldCom to some $6 billion.

When WorldCom made its disclosure in June, it said it would go back and review financials from prior years.

The fraud in 2000 is said to differ from the techniques used in 2001 and 2002, according to CNBC.

In the latest case, the report said, Sullivan is believed to have used a variety of techniques to bolster operating income, including reversing reserves for bad debts into operating income.

August 2, 2002

Two former WorldCom executives were released on bail -- $10 million and $2 million -- after their arrests on charges of concealing more than $3.8 billion in company expenses.

Former chief financial officer Scott Sullivan, 40, and former controller David Myers, 44, surrendered to the FBI on Thursday in the latest blow to the now-bankrupt telecommunications company and corporate America, which has seen investors bail out of the stock market because of one accounting scandal after another.

"With each arrest, indictment and prosecution, we send this clear, unmistakable message: Corrupt corporate executives are no better than common thieves," Attorney General John Ashcroft said.

Sullivan and Myers could get up to 65 years in prison if convicted on charges of securities fraud, conspiracy and filing false statements with the Securities and Exchange Commission, Ashcroft said. But federal guidelines call for a sentence of 10 years or less.

Sullivan was released on $10 million bail, Myers on $2 million. Sullivan's bond was secured by a multimillion-dollar mansion under construction in Boca Raton, Fla.

Outside court, Sullivan's attorney, Irv Nathan, called him "an honest and honorable man" and accused the Justice Department of making him a scapegoat. "We deeply regret the rush to judgment and the political overtones involved," Nathan said.

Myers' lawyers said he would plead innocent if indicted.

WorldCom, which owns MCI, the nation's second-largest long-distance company, filed for Chapter 11 bankruptcy July 21 after disclosing the accounting abuses. It was the biggest such filing in U.S. history.

Sullivan is accused of directing Myers to falsify the company's balance sheet by about $3.8 billion. That enabled WorldCom to continue reporting profits when it was actually losing money.

As the scheme was unraveling in June, Myers told WorldCom accountants that the company "could not continue with the cost structure at the current levels and that if the cost structure did not change, the company 'might as well shut the doors,'" prosecutors said in court papers.

The charges against Sullivan and Myers could pressure them to tell investigators what they know about their one-time boss, former chief executive Bernard Ebbers, who is also under investigation.

Ebbers' lawyers said in a statement that he had no knowledge of the accounting decisions in question, and believed Sullivan and Myers to be "competent, ethical and loyal employees, devoted to the welfare of WorldCom."

Federal agents led the two businessmen out of New York's FBI headquarters in handcuffs en route to the courthouse. Two passers-by clapped.

Prosecutors said the defendants never disclosed the questionable accounting practices to WorldCom's outside auditors, including Arthur Andersen.

Sullivan and Myers were fired in June. Also in June, the SEC filed civil fraud charges against WorldCom, accusing it of "accounting improprieties of unprecedented magnitude."

Justice Department officials declined to say Thursday whether they were still considering taking the more drastic step of charging WorldCom as a corporation. A conviction could drive the company out of business.

Also Thursday, the Justice Department nominated former Attorney General Richard Thornburgh to be an independent examiner in the WorldCom bankruptcy case. If approved by the bankruptcy court, Thornburgh will have the job of ensuring an honest accounting of the company's value and investigating for mismanagement and fraud.

Last week, federal authorities in New York arrested the founder of Adelphia Communications along with two of his sons and two other former executives on charges they looted the now-bankrupt cable giant and used it as their "personal piggy bank."

Global Crossing and Enron, which collapsed amid corporate accounting scandals, remain under investigation. 
Copyright © 2002, The Baltimore Sun

CLINTON, Miss., July 29, 2002 - WorldCom, Inc. (WCOEQ, MCWEQ) today announced that a Nasdaq Listing Qualifications Panel had issued a written decision that, based on WorldCom's recent bankruptcy filing and the pending restatement of its financial statements for 2001 and the first quarter of 2002, WorldCom's WorldCom Group Common Stock, MCI Group Common Stock and 8% Cumulative Quarterly Income Preferred Securities, Series A, would be delisted from the Nasdaq Stock Market effective as of the opening of trading on July 30, 2002. WorldCom expects that its securities will trade on the Pink Sheets under the symbols WCOEQ, MCWEQ and MCPEQ following the delisting by Nasdaq.

About WorldCom, Inc.
WorldCom, Inc. (WCOEQ, MCWEQ) is a pre-eminent global communications provider for the digital generation, operating in more than 65 countries. With one of the most expansive, wholly owned IP networks in the world, WorldCom provides innovative data and Internet services for businesses to communicate in today's market. In April 2002, WorldCom launched The Neighborhood built by MCI - the industry's first truly any-distance, all-inclusive local and long-distance offering to consumers for one fixed monthly price. For more information, go to http://www.worldcom.com.

Click here for frequently asked questions concerning the status of the WorldCom securities.
 

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Former CEO Ebbers, two top financial men could face charges

Associated Press

July 26, 2002

NEW YORK - Federal prosecutors plan to charge former officers of WorldCom Inc. next week for their suspected roles in the extensive financial wrongdoing at the bankrupt telecommunications giant, a law enforcement official said yesterday.

"Indications are that charges will be filed sometime next week," said a source close to the investigation, speaking on condition of anonymity.

The official would not say which officials are likely to be charged, or how many.

The Wall Street Journal reported yesterday that former Chief Financial Officer Scott D. Sullivan and former Controller David Myers are expected to be indicted on charges related to billions of dollars in accounting frauds at the company.

The government also is likely to seek the indictment of former Chief Executive Officer Bernard J. Ebbers, the Journal reported, attributing that to unidentified sources familiar with the matter.

"We are confident that the prosecutors will ignore the howling mob and concentrate on the evidence," Ebbers' attorney Reid Weingarten said in a statement. "And if they do so, Mr. Ebbers will not be prosecuted."

Federal prosecutors set a deadline of Wednesday to file indictments against Sullivan and Myers, who were dismissed from the company last month, the sources told the newspaper.

They said prosecutors are seeking the cooperation of Myers and Sullivan to produce evidence against Ebbers, who resigned two months before the company admitted inflating earnings by nearly $4 billion.

WorldCom also could be indicted as a corporation under a plan being considered by the Justice Department, the Journal reported. A conviction of the long-distance phone company could drive it out of business and hurt consumers and creditors.

WorldCom spokeswoman Julie Moore said the company had no indication that indictments were forthcoming.

"That is flatly inconsistent with what federal prosecutors have communicated to the company," Moore said.

The Justice Department and the FBI declined to comment yesterday. Calls to Myers' home were answered by a recording, and his attorney could not immediately be found for comment.

Sullivan's attorney, Andrew J. Graham, did not immediately return a request for comment.

The Securities and Exchange Commission, noting "accounting improprieties of unprecedented magnitude," filed civil fraud charges last month against WorldCom.

The Clinton, Miss.-based company admitted June 25 that it had falsely accounted for $3.8 billion in expenses. The inflated revenue allowed the company to report a profit when it otherwise would have had a loss.

Sullivan, who was fired the same day, subsequently was accused by the company's auditor, Arthur Andersen, of withholding crucial information about WorldCom's bookkeeping.

WorldCom filed for bankruptcy protection Sunday under Chapter 11, the largest such filing in U.S. history.

U.S. Bankruptcy Judge Arthur J. Gonzalez approved $2 billion in financing Monday to keep WorldCom operating as it reorganizes its finances.

He also granted the Justice Department's request for an independent examiner to ensure an honest accounting of the company's value and to investigate possible mismanagement, irregularities and fraud.

Copyright © 2002, The Baltimore Sun

July 22, 2002

LOS ANGELES -- WorldCom Inc., the nation's second-largest long-distance company, crumpled into bankruptcy late Sunday, brought down by massive debt, a shortage of cash and an accounting scandal that rocked investor confidence.

The Clinton, Miss.-based telecommunications giant listed $104 billion in assets in its filing for reorganization under federal bankruptcy laws, making it the largest such case in history. It dwarfs December's Chapter 11 filing by Houston energy trader Enron Corp., which listed assets of $63.4 billion.

WorldCom built itself into a telecommunications giant through some 75 acquisitions but along the way amassed $32 billion in debt.

The company's financial troubles stretch across the U.S. economy, from about 20 million residential and corporate customers to the large and small pension funds that put nearly $30 billion into WorldCom bonds that now are almost worthless.

Telephone and data service for customers of WorldCom and its MCI subsidiary is not expected to be disrupted as the carrier tries to restructure. WorldCom also carries half the traffic on the Internet.

"I want to assure the public that we do not believe this bankruptcy filing will lead to an immediate disruption of service to consumers or threaten the operation of WorldCom's Internet backbone facilities," said Michael K. Powell, chairman of the Federal Communications Commission.

But the U.S. Telecom Association, a trade group whose largest members are WorldCom creditors, warned that the company's filing could lead to a "state of crisis" in the industry that could raise costs for other telephone companies and their customers.

In a letter Sunday to the FCC, the trade group asked the agency to make sure that the bankruptcy filing "does not undermine the financial stability of other carriers that provide services to it."

WorldCom tops the long list of corporate scandals in the last year that have helped to rattle investor confidence and shake stock markets to their lowest points in recent years.

"The impact will be way more significant than anything that we have seen before in telecommunications," said Roger Wery, a telecom expert at consulting firm PRTM in San Francisco. "It will start with the telecom industry, but it then has ramifications across real estate and many other industries. In terms of scale and visibility, this company can further destroy investor confidence and eventually consumer confidence."

Much of WorldCom's debt, consisting of $29.3 billion in bonds and $2 billion in bank loans, will be erased in a proceeding that protects the company from creditors while it reorganizes. Eventually, a judge and the company's creditors must approve a reorganization plan likely to repay creditors only cents on the dollar. Shareholders also will be wiped out.

Industry experts said that because of the decimated telecommunications industry, the company's assets probably are worth less than $15 billion, rather than the more than $100 billion WorldCom listed in its filing.

The losses stem from the massive investments in the telecommunications industry that went to build fiber-optic networks much faster than demand was growing for high-speed connections.

The company's bankruptcy papers, which run about 1,000 pages, were filed Sunday night in U.S. Bankruptcy Court in New York.

WorldCom said it planned to work through the bankruptcy and emerge in nine months to a year as a smaller but intact operation. It will obtain $750 million in cash today as part of $2 billion in special debtor financing as it pursues its plan to sell some noncore assets -- mainly its wireless, real estate and Brazilian and Mexican operations.

"Chapter 11 enables us to create the greatest possible value for our creditors, preserve jobs for our employees, continue to deliver top-quality service to our customers and maintain our role in America's national security," John W. Sidgmore, the company's chief executive, said in a statement.

Spokesman Brad Burns said the company would hire a restructuring chief, who would report to Sidgmore, and add former Atty. Gen. Nicholas Katzenbach and University of Georgia accounting professor Dennis R. Beresford to the board. Burns denied widespread reports that Sidgmore will be forced out, noting that creditors and vendors had not broached that subject with the company.

Many large corporate customers, which provide two-thirds of WorldCom's revenue, are looking for other carriers. With WorldCom's current program to lay off 20 percent of its work force, analysts figure that any outages and glitches that occur in its network will take longer to repair.

WorldCom's demise had been expected after the company that exploded onto the telecom scene in the last decade announced June 25 that it had uncovered internal accounting irregularities. Over 15 months, through March, the company overstated revenue by nearly $3.9 billion by converting expenses into capital expenditures -- an accounting sleight of hand that gave the company profits when it should have recorded losses.

The scandal brought condemnation from President Bush and helped spur Congress to develop stricter accounting rules and civil and criminal penalties. It also opened the company up to a slew of new fraud claims, including a lawsuit by the Securities and Exchange Commission.

The company's aggressive accounting, high executive salaries and $408 million in personal loans to founder and former CEO Bernard J. Ebbers rival the improprieties attributed to Enron.

Three years ago, WorldCom's soaring stock valued the company at $120 billion. By Friday, with its share price closing at 9 cents, the company was worth only $281 million.

"Chief executives are clearly going to be held much more accountable, whether they're held criminally accountable by the government or civilly accountable by stockholder suits," said Tom Evslin, chairman of ITXC Corp., a Princeton, N.J., long-distance carrier. "The result is still that there's going to be a lot of pressure to tell the whole [quarterly financial] story in an unadorned way."

Sidgmore had insisted July 2 that WorldCom was too big to fail and remains a "key component of our nation's economy and communications infrastructure."

A week later, though, company executives acknowledged that it was getting harder to avoid a bankruptcy filing as anxious vendors, mainly the Baby Bells that provide WorldCom access to their local customers, began wiping out WorldCom's once-substantial cash position by demanding payment upfront for service.

WorldCom has gone through $4 billion in cash and loans since the end of March and was left with what it said was several hundred million dollars by the time it filed for bankruptcy protection.

Last week, the company won commitments for $2 billion in loans to operate under the auspices of the Bankruptcy Court. The special financing, arranged with J.P. Morgan Chase & Co., Citigroup Inc. and GE Capital, the financial services unit of General Electric Co., kicks in with WorldCom's bankruptcy filing.

WorldCom might not need to touch much of that money because the bankruptcy filing allows it to halt interest payments and other debt repayments, saving it hundreds of millions of dollars.

Nevertheless, industry analysts and experts already have been assessing WorldCom's viability in Chapter 11, and they are not sure they like what they see. The company is trying to sell operations in Mexico and Brazil, but those units are not expected to bring in much money.

Its businesses are so tied together that it would have to tear off big chunks, such as its UUNet Internet provider, its customer base or its MCI brand, to get some of the billions it needs -- and those sales probably would destroy any overall value of the company.

WorldCom started out as small long-distance carrier in 1983 after the court-ordered breakup of AT&T Corp. opened up long-distance competition and turned Ma Bell's local service over to regional Bell operating companies, generally known as Baby Bells.

The brash Ebbers, a Canadian who attended Mississippi College in Clinton on a basketball scholarship, took over as chief executive in 1985 and put the company, then called Long-Distance Discount Service, on an acquisition spree that eventually soaked up about 75 companies. It went public in 1989 and by 1992 was the fourth-largest long-distance provider in the country. Its name was changed to WorldCom in 1995.

But it was the 1998 acquisition of MCI Communications Corp. for a record $40 billion in cash and stock that brought WorldCom widespread attention and made it the nation's No. 2 long-distance carrier. Before then, WorldCom was known primarily in corporate circles, where it provides voice and data services to large companies.

Along the way, the company picked up a young accountant named Scott D. Sullivan, who eventually became chief financial officer and Ebbers' right-hand man.

As WorldCom's financial woes mounted early this year and his loans became known, Ebbers quit.

WorldCom fired Sullivan in June, blaming him for the accounting scandal, which had previously escaped both internal auditors and the company's accounting firm, Arthur Andersen.

Times staff writer Jube Shiver in Washington contributed to this report. 
Copyright © 2002, The Los Angeles Times

June 27, 2002

Despite mounting fiscal and legal woes, WorldCom Inc. could emerge from its current crisis as a leaner and stronger telecommunications company.

Analysts said Wednesday that WorldCom will probably be forced to file for bankruptcy protection, a move that ordinarily would lead competitors to buy its assets at fire-sale prices. But problems in the telecommunications industry are so severe that no one is likely to want the company.

Instead, WorldCom could remain in operation, cast off unprofitable units and negotiate better terms from lenders and suppliers, who are motivated to help the company survive, analysts said.

If it does, the reincarnated WorldCom could push prices for long-distance phone and data services even lower, intensifying competition in a market that already has too much capacity and too many providers.

For WorldCom, the wild cards are its customers, particularly the large corporations that rely on its phone and data services. If they run to other carriers, WorldCom is doomed.

"We're concerned, of course," said Suzy Whittenton, chief financial officer of the Texas Department of Parks and Wildlife, which has hired WorldCom to create and run a multimillion-dollar database system for hunting and fishing licenses. "Our staff's meeting right now to figure out how we'd deal with this if WorldCom went away."

The telecommunications industry is plagued by too much supply and not enough demand, said David Passmore, research director for Burton Group, a network analysis firm. Companies such as WorldCom built massive networks to move phone calls, e-mails and faxes around the world, but the pipes are far from full.

"What needs to happen is that half of these companies have to go away so that the remaining companies can begin to heal themselves," Passmore said. "But that's not happening. The assets remain. The networks don't go away. Someone else will come along and continue to operate these networks, and that keeps up the price pressure. It's a difficult situation. That's why we're not going see the end of the bankruptcies by carriers for some time."

Compounding the situation is a perceived advantage to seeking Bankruptcy Court protection as a way to wipe a company's slate clean of debt.

"As each carrier goes bankrupt, they are freed from debt," Passmore predicted. "When they emerge from bankruptcy, they can cut their prices to compete, which drives the next guy into bankruptcy. There's a domino effect that could happen here."

If the recent experience of Covad Communications Group Inc. and McLeodUSA Inc. is any guide, WorldCom has reason to be optimistic. The two telecommunications companies recently went through bankruptcy, yet both said they held on to virtually all of their major customers.

WorldCom executives said they have no plans to file for bankruptcy protection or to make any significant changes in their offerings. Although the company will no longer resell wireless-phone service, it plans to continue providing long-distance calling, local and long-distance data and Internet services and international communications.

"Yesterday's announcement does not affect our customers or our service," a WorldCom spokeswoman said, referring to Tuesday's disclosure that the company had mischaracterized $3.9 billion in expenses as capital improvements. "It really is business as usual."

On the contrary, many analysts said, the announcement is likely to compound WorldCom's financial troubles. The company had recently reported a nearly 10% decline in revenue from external customers, including steep drops in consumer long-distance and small-business sales.

Its most valuable assets include its high-capacity long-distance lines and, in numerous cities, local fiber-optic networks that can link businesses to that long-distance backbone. But on many of the routes WorldCom serves, fierce competition and rapidly advancing technology have led to a glut of long-distance capacity and sharply falling prices.

This bleak industry outlook, combined with the financial hit WorldCom must take to properly account for its expenses, makes lenders unlikely to offer the company more credit. Nevertheless, some financial experts say there is a small chance WorldCom may avoid bankruptcy.

"But if creditors can agree to work with the company, it's a lot faster, cheaper and less complicated to stay out of court," said Richard Levin, a partner at Skadden Arps Slate Meagher & Flom in Los Angeles who helped draft the 1978 U.S. Bankruptcy Code.

WorldCom also has $4 billion in cash, enough to allow it to continue operating into early next year, analysts said. It also plans to cut 17,000 of about 80,000 jobs.

Nevertheless, Glen Macdonald, a vice president at Adventis Corp., a technology consulting firm in Boston, predicted that WorldCom won't be able to dodge the bankruptcy bullet. "They'll definitely have to seek bankruptcy protection," he said. "It will send a signal to their suppliers and customers ... that they'll have time to get their act together."

WorldCom's banks and equipment suppliers are eager to see the company stay in business because they'll lose less money that way, Macdonald said. The key to WorldCom's ability to emerge from bankruptcy protection, he said, is its ability to hold onto its customers.

Residential customers could easily switch from WorldCom to AT&T Corp., Sprint Corp. or another provider, but Macdonald said most wouldn't change as long as they could continue to make long-distance calls. And corporate customers aren't likely to switch quickly, analysts said, because they have long-term contracts with WorldCom or complex network connections.

"Customers can't flash-cut overnight," Adam Quinton, telecommunications analyst with Merrill Lynch, said during a conference call. The question is whether customers find a gradual exit. The Pennsylvania Department of Transportation, for example, is midway into a seven-year contract with WorldCom's MCI subsidiary for data services related to its automobile-emissions program.

"It's only one program, but it's an important one," said Rich Kirkpatrick, the department's press secretary. "Though we don't expect any problems, we do have emergency provisions in place. We're having meetings about those steps today."

So too was the staff at the Texas Department of Parks and Wildlife. The team is only one year into a five-year contract with WorldCom.

"They told us what they knew—the layoffs weren't going to affect them," Whittenton said. "But that could change, and everyone knows it."
Copyright © 2002, The Los Angeles Times

July 12, 2002

WASHINGTON - World-Com's chief executive at the time was aware that hundreds of millions of dollars were shifted as part of nearly $4 billion in accounting irregularities, company attorneys have told a House investigative panel.

The telecommunications giant's founder and former CEO, Bernard Ebbers, invoked his Fifth Amendment right against self-incrimination at a congressional hearing Monday and refused to answer questions, citing current investigations by the Justice Department and the Securities and Exchange Commission.

Ebbers' attorney said his client was unaware of the transactions in question.

The SEC has filed civil fraud charges against WorldCom, one of the latest major corporations to face allegations of executive wrongdoing and accounting dodges, driving down public confidence in business and the stock market.

Attorneys for WorldCom recently told investigators with the House Energy and Commerce Committee that "Bernie [Ebbers] was aware that hundreds of millions of dollars had been moved," committee spokesman Ken Johnson said yesterday. The attorneys said that information came to them from Scott Sullivan, WorldCom's former chief financial officer, who also refused to testify Monday.

"This is the first evidence that we've seen that the muddy little footprints may lead back to Bernie Ebbers' doorstep," Johnson said. "Clearly, there's evidence that some people at WorldCom knew someone was cooking the books."

Ebbers, in an interview with attorneys conducting an internal investigation for WorldCom, denied Sullivan's assertion that Ebbers had been aware of the transactions, Johnson noted.

Ebbers' Washington attorney, Reid Weingarten, said last night: "Bernie Ebbers did not know about the accounting decisions of Scott Sullivan to reassign billions of dollars."

Weingarten said that on the contrary, people at the company had assured him that Sullivan had said Ebbers had no knowledge of the transfers.

WorldCom's current CEO, John Sidgmore, has said he did not know whether Ebbers - who received $400 million in loans from the company - had that knowledge.

When Ebbers invoked his constitutional privilege at the hearing by the House Financial Services Committee, he said, "I do not believe I have anything to hide."

When all the facts are out, he said, "I believe that no one will conclude that I engaged in any criminal or fraudulent conduct."

Led by Republican Reps. Billy Tauzin of Louisiana and James C. Greenwood of Pennsylvania, the Energy and Commerce Committee has been investigating WorldCom's extensive misstatement since the company disclosed last month that it disguised $3.9 billion of expenses as capital expenditures to appear more profitable.

Johnson said the committee received five boxes of documents from WorldCom yesterday, the deadline set by the panel in its request for records, including those related to a WorldCom internal audit and minutes of the company's board and audit committee. 
Copyright © 2002, The Baltimore Sun

June 26, 2002, 11:01 AM EDT

A look at WorldCom Inc.'s business and holdings:

WorldCom Inc. is a telecommunications heavyweight, operating the nation's second-largest long-distance calling business and one of the world's biggest "backbone" networks for Internet traffic and electronic commerce.

The company, based in Jackson, Miss., has 85,000 employees and had 2001 sales of $35.2 billion.

The company's primary holdings consist of the WorldCom Group serving large businesses and the MCI Group for consumers and small businesses. The units have separate stocks, but WorldCom is in the process of eliminating the dual listing to simplify its business.

WorldCom Group provides data and telephone service, Web access and computer-network management. It operates one of the world's most-extensive communications networks based on the Internet protocol, or IP, data format.

MCI Group is the nation's No. 2 long-distance provider behind AT&T and also provides local phone service in some states.

WorldCom also owns a 94 percent voting stake in Digex Inc., a Web hosting firm that had sales last year of $214 million, and a 52 percent controlling stake in the Brazilian long-distance carrier Embratel Participacoes S.A.

Source: Hoovers.com
Copyright 2002 Associated Press