WorldCom in Default, Closer to Bankruptcy; Tells SEC Manipulation of Books Is Suspected as Far Back as 1999.(BUSINESS)

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Byline: Patrice Hill, THE WASHINGTON TIMES

WorldCom Inc.'s woes deepened yesterday as bank lenders declared it in default, pushing it closer to bankruptcy, and the company said it had uncovered more suspected manipulation of its books.

The government responded swiftly to the disclosures, which came in a sworn statement to the Securities and Exchange Commission, announcing it might suspend new business deals with the telecommunications giant and promising severe punishment of the wrongdoers.

WorldCom's statement to the SEC blamed Chief Financial Officer Scott D. Sullivan and Comptroller David F. Myers for masterminding the effort to hide losses from investors by shifting nearly $4 billion of operating expenses into the capital budget in 2001 and 2002.

In addition, the company said it was investigating suspected manipulation of its reserves in 1999 and 2000.

The statement did not mention any involvement by Bernie Ebbers, WorldCom's colorful founder who stepped down as chief executive in April. Mr. Ebbers has not spoken publicly about the SEC's lawsuit charging the company with securities fraud, but he reportedly told members of his church in Mississippi on Sunday that "no one will find me to have knowingly committed fraud."

SEC Chairman Harvey Pitt said the agency was reserving its harshest punishment for the perpetrators. Shareholders also were seeking restitution in a class-action lawsuit filed in a federal court in Mississippi yesterday.

"Criminal charges may be too good for the people who brought about this mess," Mr. Pitt said on NBC's "Today" show. "I'm outraged. The American public is outraged."

President Bush, in a speech in Cleveland, hinted that he was preparing measures to ensure that corporate executives who lied about their companies' finances would end up in jail.

"There must be trust. And some have violated the trust," he said. "I intend to fully enforce the law when people cheat on the balance sheets of corporate America."

WorldCom said in its statement that it terminated both Mr. Sullivan and Mr. Myers without severance pay last month when it uncovered the transfers of network-leasing payments into the capital budget, in violation of basic accounting principles. …