Business

WorldCom reveals accounting fraud

WASHINGTON JUNE 26. In a fraud far bigger in money terms than Enron's misdeeds, the telecom giant WorldCom Inc. has revealed that its officials improperly accounted for $3.8 billion in expenses, a disclosure that threw share prices around the globe into tailspin today.

Further undermining the trust of investors in corporate America, the troubled company said it had misstated accounting figures in the amount of $3.8 billion and would take a charge against earnings that would wipe out all its reported profits since the beginning of last year.

It fired Scott Sullivan, Chief Financial Officer and Secretary, and accepted the resignation of David Myers, Senior Vice President and Controller, in an attempt to salvage some of its business.

WorldCom, one of the pioneers of the 1990s telecom boom, revealed last night that it had swept $3.8 billion in ordinary expenses off its profit-and-loss statement by counting them as capital expenditures, which are deducted from revenue over a longer period, not immediately. The company had previously reported profits of $1.5 billion for 2001 and $130 million for this year's first quarter. The charge against earnings is expected to be the largest in business history.

The revelation by the nation's second largest long distance telecommunications company stunned the business world already grappling with scandal. Share prices around the world plummeted on news of the fresh scandal, with telecom firms particularly hard hit. The WorldCom revelation, the latest in a startling series of developments that have spawned new mistrust of corporate America, is also another damning indictment of auditor Andersen which was responsible for approving the accounts of the telecom company as well as Enron.

The business world was already reeling under the collapse of Enron Corp., the conviction of Arthur Andersen LLP for obstructing the Enron investigation, and the indictment of former chief executives from ImClone Systems Inc. and Tyco International. While WorldCom claimed that despite its shaky financial condition it would be able to continue normal operations, Rob Gensler, an analyst for T Rowe Price, a major mutual fund company, said, ``I would be stunned if the restatement does not trigger bankruptcy.'' — PTI

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