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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (2374)	7/26/2002 12:39:31 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 3602

Wil DOJ put WCOM to death: msnbc.com Fraud charge could doom WorldCom Criminal conviction of the company seen as the final blow By John W. Schoen MSNBC July 25 — As WorldCom struggles to salvage itself in bankruptcy court, the best hope for creditors, employees and customers is that the company emerges as a going concern. But if federal prosecutors proceed with reported plans to indict the company, the odds for survival of the nation’s second-largest long distance provider shrink about as low as its stock. WORLDCOM’S current shareholders have already lost tens of billions of dollars since the company confessed to having cooked its books — inflating profits by listing nearly $4 billion in short-term expenses as long-term capital costs. Now, the company’s bankruptcy filing sends those shareholders to the back of the line, behind banks and bondholders, in their efforts to get their money back. “Our two pension funds took an $850 million hit on WorldCom alone,” said California State Treasurer Philip Angelides. “That compares to the $208 million robbed from all banks in the United States from 1996 to 2001.” Some 17,000 recently fired employees also took a big hit when their severance payments were held up by the bankruptcy court filing. They’ll each be paid just $4,600 now while they get in line along with the rest of WorldCom’s creditors in a proceeding that could take a year or more to resolve. Meanwhile, severance payments to former WorldCom CEO Bernie Ebbers — amounting to $1.5 million a year for life — have not yet been suspended. Former chief financial officer Scott Sullivan has already collected his $10 million severance payment. Those two former executives may soon need those funds to pay legal bills, now that federal prosecutors are set to indict them on fraud charges, according to The Wall Street Journal. The move is not unexpected, given President Bush’s recently promises to throw the book at executives involved in accounting abuses. Two officials at Adelphia Communications, embroiled in its own accounting scandal, were handcuffed and led away Wednesday in a high profile arrest on fraud charges. But the Journal also reports that the government may soon bring charges against WorldCom itself. (WorldCom spokeswoman Julie Moore said on Thursday the company had no indication that indictments were forthcoming.) With its reputation already in tatters, a successful prosecution would be “the final nail in the coffin,” according to Guzman & Co analyst Patrick Comack. “They won’t be able to recover from bankruptcy (proceedings) if they’re found guilty as a company,” he said. That could leave WorldCom’s customers in the lurch, including some 20 million residential long-distance and 2 million local telephone subscribers. The company’s customer list includes corporate clients like Nasdaq, AOL Time Warner Inc., BP Amoco, as well as the Federal Aviation Administration, the U.S. Defense Department. For now, WorldCom’s operations are expected to remain relatively normal as its attorney try to negotiate a deal with creditors. But even without a conviction, resurrecting WorldCom from bankruptcy protection won’t be easy. The company recently won a $2 billion lifeline from it lenders, who are hoping to improve their chances of getting back billions more by keeping the telecom provider in business. The company is expected to go through about $300 million of that cash in the next 13 weeks. The only payments that have been approved so far include $50 million to foreign telecom companies that handle WorldCom calls overseas and $70 million for “critical vendors” who provide services that generate revenues for the company. The bankruptcy court also approved $82 million a month in state and federal tax payments — without which the company wouldn’t be allowed to stay in business. So the company’s future now rests with hundreds of creditors, vendors — and their attorneys — who are all trying to agree on who gets paid what. One current proposal would swap new stock for the $30 billion mountain of debt that has crushed the company and forced it to restructure. (Those new shares would replace existing stock, wiping out shareholders.) Some creditors, though, are balking at getting paid with paper and are demanding cash. They’re pushing for a sale of some or all the company’s considerable assets, which include UUNET, a global Internet backbone that spans six continents; MCI Group, a long-distance carrier; Digex, a Web hosting service, and SkyTel, a global messaging service. Though the company values all of its holdings at $107 billion, analysts say those are probably worth about a fifth of that amount. Just how much they’re worth won’t become fully known unless and until they’re put up for sale. But a conviction of the company on fraud charges would likely force a liquidation of those assets at fire sale prices, says Comack. “If they’re forced to liquidate immediately, they don’t have any cards,” he said. “The buyers would have all the leverage.” The Associated Press and Reuters contributed to this report.