Congress takes aim at WorldCom
Lawmaker suspects more costs concealed by carrier
By Rex Nutting & Jeffry Bartash, CBS.MarketWatch.com
Last Update: 2:54 PM ET July 8, 2002
WASHINGTON (CBS.MW) - A U.S. lawmaker on Monday charged that WorldCom may have hidden more expenses, just hours before Congress launched its own investigation of the embattled phone giant.
Rep. Michael Oxley, R-Ohio, said he thinks WorldCom may have concealed another $1 billion in expenses. The carrier has already acknowledged that it improperly accounted for $3.8 billion in ordinary costs as long-term investments.
Oxley made his remarks during an appearance on ABC's Good Morning America. He is chairman of the House Financial Services Committee, which heard testimony Monday from current WorldCom executives and the company's former lead outside auditor.
Former WorldCom Chief Executive Bernard Ebbers and ex-Chief Financial Officer Scott Sullivan declined to testify, citing Fifth Amendment protection against self-incrimination.
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Sullivan was fired June 24 after admitting that he treated $3.8 billion in operating costs as capital investments, thereby inflating WorldCom's profits by that amount over five quarters. On Friday, WorldCom sued Sullivan for the return of $10 million in bonuses.
Ebbers resigned under pressure in late April after the company's stock plunged and its financial condition worsened.
Go to jail
The growing dearth of confidence in American corporations, meanwhile, moves to the top of Washington's agenda as lawmakers jockey to offer competing plans on how to clean up Wall Street.
President Bush is expected to unveil his plan on Tuesday, but Democrats and congressional lawmakers aren't waiting around.
Business groups, worried that lawmakers might enact draconian measures, are also issuing proposals in an effort to help shape the debate.
On Sunday, some lawmakers said crooked executives ought to be thrown in jail to help restore public confidence and to deter other white-collar crimes.
"Some of these corporate criminals need to go to jail," Rep. Billy Tauzin, chairman of the House Energy and Commerce Committee told NBC-TV Sunday.
The Republican said he believes investor confidence will come back "as soon as one of these major corporate leaders is indicted."
Tauzin's committee is investigating the major bankruptcies of former energy trader Enron and telecommunications firm Global Crossing.
Senate Majority Leader and Democrat, Tom Daschle echoed Tauzin's sentiment on CBS' "Face the Nation."
"We have to go after the bad actors," he said. "There has to be an aggressive effort on the part of the Justice Department."
Daschle also called for the resignation of Harvey Pitt, head of the Securities and Exchange Commission. Several other lawmakers echoed that demand, including at least one Republican.
Capitol games
The wave of corporate scandals has energized Democrats seeking to find an issue for the November elections, but Republicans appear determined not to be outdone.
The Democratically controlled Senate is slated to begin debate on an accounting reform bill this week that aims to close some of the loopholes that hid the true financial picture of companies such as Enron (ENRNQ: news, chart, profile), Global Crossing (GBLXQ: news, chart, profile) and WorldCom.
The bill would establish an independent accounting oversight board with powers to investigate and punish corporate auditors. Senate Democrats may strengthen the bill by adding amendments to increase the penalties for securities fraud and to tighten pension laws.
In the Republican controlled House, Tauzin and Oxley are talking tough about corporate wrongdoers.
The House has approved a separate bill to reform corporate accounting and governance. The bill would create a new self-regulatory accounting oversight board. The House bill largely incorporates suggestions made by Bush in March.
Republicans have said the Democrat bill goes too far, but Democrats say that the GOP reforms don't go far enough.
Who's talking
At Monday's hearing, Oxley's panel aggressively questioned current and former WorldCom executives, but Ebbers remained silent except for a staunch declaration of innocence at the start of the hearing. Sullivan merely asserted his Fifth Amendment right.
Current WorldCom CEO John Sidgmore and Chairman Bert Roberts answered questions, but they shed no new details.
Roberts blamed the company's former outside auditor, Andersen, for not discovering the $3.8 billion cover-up earlier. Yet Melvin Dick, who led Andersen's audit, said the fault lay with WorldCom executives, who provided him with false information. See full story.
Meanwhile, Salomon Smith Barney telecom analyst Jack Grubman apologized for making a bad call on WorldCom, but he defended his work methods and denied any advance knowledge of the company's financial troubles. See full story.
Grubman was particularly close to Ebbers and Sullivan. He kept the faith in WorldCom long after the market had given up on it and he advised Ebbers on mergers, acquisitions and capital formation.
While Congress tackles the WorldCom scandal publicly, the SEC and Justice Department have quietly intensified their own civil and criminal investigations.
On Monday, WorldCom (WCOME: news, chart, profile) fell 6 cents to 19 cents. The company is appealing a decision by the Nasdaq to de-list the stock.
Rex Nutting is Washington bureau chief of CBS.MarketWatch.com.
Jeffry Bartash is a reporter for CBS.MarketWatch.com in Washington. |
