'WorldBomb' Owns Up to Pounds 2.5bn Accounting Fraud

The Birmingham Post (England), June 27, 2002 | Go to article overview

'WorldBomb' Owns Up to Pounds 2.5bn Accounting Fraud


Byline: John Cranage

US telecoms group WorldCom looked in danger of becoming WorldBomb yesterday after owning up to a pounds 2.5 billion accounting fraud.

The scandal, thought to be the biggest in US history, cost 17,000 employees - a fifth of the workforce - their jobs, sent stock markets plummeting and threw a pounds 20 billion debt refinancing deal into doubt.

It also plunged scandal-plagued accountants Arthur Andersen into a fresh furore.

It emerged that Andersen, since replaced by KPMG, had audited and signed off WorldCom accounts that hid the fact that operating costs such as basic phone network maintenance had been booked as capital investments.

The scam, carried out over a 15-month period, enabled Mississippi-based WorldCom to hide costs and inflate its cash flow and profits.

Now, profits of pounds 940 million reported in 2001 and pounds 87 million for the first quarter of 2002 will be restated as losses. The announcement sent new shockwaves ripping through Wall Street and WorldCom shares, which peaked at more than $64 in June, 1999, hit a new low of 20 cents in early trading before being suspended.

WorldCom chief financial officer and secretary Scott Sullivan was fired on Tuesday and the company said it had accepted the resignation of senior vicepresident and controller David Myers.

The Securities and Exchange Commission spoke of 'accounting improprieties of unprecedented magnitude' and the US Justice Department was said to be starting a criminal investigation into WorldCom.

John Sidgmore, who was appointed as chief executive on April 29, said: 'Our senior management team is shocked at these discoveries.

'We are committed to operating WorldCom in accordance with the highest ethical standards.'

Mr Sidgmore replaced former president and chief executive Bernie Ebbers who left the company in April amid questions about the company's finances.

Mr Ebbers owes WorldCom nearly pounds 274 million in loans and loan guarantees.

The revelation of wide-scale bookkeeping malpractice at WorldCom, a second-tier telecoms company that became a world giant operating in more than 60 countries after buying MCI forpounds 20 billion in 1998, follows scandals at Enron and Global Crossing.

European stock market traders and investors yesterday spoke of their shock and disgust at the discovery of another US accounting embarrassment. …

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