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To: Eric who wrote (59955)	6/25/2002 7:52:56 PM
From: Eric	Respond to of 77400

Here is the story for tomorrow at WSJ Ouch! WorldCom Internal Investigation Uncovers Apparent Massive Fraud Improperly Booking More Than $3 Billion In Expenses Helped Boost Cash Flow, Profits By JARED SANDBERG Staff Reporter of THE WALL STREET JOURNAL NEW YORK -- WorldCom Inc. has uncovered what appears to be one of the largest corporate frauds in history with the discovery of more than $3 billion in expenses that were improperly booked as capital expenditures, a financial gimmick that boosted the firm's cash flow and profits over the past five quarters, according to people familiar with the situation. The discovery was found during an internal investigation. WorldCom has fired its longtime chief financial officer, Scott Sullivan. "The whole thing is just unbelievable," said one person familiar with the matter. Go to Called to Account The latest development could deliver the final blow to WorldCom, which was one of the biggest stock market stars of the 1990s. The telecommunications giant has been hobbled by a collapsing market, an investigation by the Securities and Exchange Commission and $30 billion in debt. John Sidgmore, who took over as WorldCom's chief executive officer in late April, declined to comment. People close to the situation say the revelations came after Mr. Sidgmore took over because employees were more comfortable coming forward with concerns they were reluctant to express previously. WorldCom has been in difficult negotiations with its banks for a $5 billion line of credit and the latest development could increase the likelihood that WorldCom will be forced to draw down $5.4 billion in existing credit lines, one of which expires June 30. Investors have been speculating that the company would draw down the lines. Drawing down the line that expires June 30 would be likely to force the company to file for bankruptcy protection because the money would be due Monday, according to Glenn Reynolds, an analyst at CreditSights. The development could have criminal implications for Mr. Sullivan, who until recently was viewed as a financial wunderkind on Wall Street. Mr. Sullivan, who came to WorldCom through an acquisition, was extremely close to former Chief Executive Bernard J. Ebbers. Mr. Ebbers, who was also the company's founder, resigned at the end of April amid criticism over a $366 million personal loan from the company and as the company cut its revenue forecast by $1 billion. Moreover, WorldCom's board could bear liability for the situation. Companies that capitalize expenses treat the costs as an asset that can be written down over time, not immediately. The accounting treatment means the expenditure doesn't affect the all-important operating cash-flow figure -- though money actually may be going out the door. Capitalizing costs is prevalent in industries like cable TV and is allowed under generally accepted accounting principles in some instances. WorldCom's woes began mounting with the advent of an SEC investigation in March, examining its finances and the double-digit revenue growth that made the company a stock-market star in the late 1990s. The SEC also is investigating how the company accounted for its biggest acquisitions, a sensitive point since the company is the legacy of more than 70 businesses that Mr. Ebbers acquired since founding the company in Mississippi as a long-distance reseller. Just Monday, WorldCom's shares slipped below $1 for the first time, a situation that could trigger a delisting by the Nasdaq Stock Market if it persists for 30 consecutive days. The decline was in response to a negative report from Salomon Smith Barney analyst Jack Grubman, once the company's biggest supporter on Wall Street. WorldCom's shares fell a further eight cents, or 8.8%, to 83 cents in 4 p.m. trading Tuesday on Nasdaq. WorldCom, based in Clinton, Miss., has 20 million consumer customers and 80,000 employees. The core of its business is phone and data service to large corporate clients. Write to Jared Sandberg at jared.sandberg@wsj.com Updated June 25, 2002 7:28 p.m. EDT online.wsj.com