WorldCom Treasurer, General Counsel Quit
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By Jessica Hall
PHILADELPHIA (Reuters) - WorldCom Inc. (Other OTC:WCOEQ - news) said on Tuesday its treasurer Susan Mayer and general counsel Michael Salsbury resigned, a day after two reports revealed more details about the company's accounting
Mayer, who served under former chief executive Bernie Ebbers, asserted in a June 17, 2002, press statement, which dealt with attempts to get a credit agreement, that the No. 2 U.S. long-distance company had "plenty of cash on hand."
A week later, WorldCom revealed the first details of its accounting scandal that would eventually reach $11 billion, and it filed for Chapter 11 bankruptcy protection on July 21, 2002, with less than $200 million in cash and $41 billion in debt.
The latest resignations followed a statement on Monday by WorldCom's new chairman, Michael Capellas saying that "no one even arguably associated with the past wrongdoing continues to work at the company."
Capellas previously said the scandal was limited to fewer than 100 people who had been fired or left the company voluntarily.
Worldcom did not say why the two executives resigned.
"I don't care if the bathroom attendant is still there, but the treasurer? To think that the person in charge of cash management at WorldCom didn't know about the shenanigans is severely naive," said Guzman & Co. analyst Patrick Comack.
Salsbury, who had been with the telecommunications company for 24 years and most recently was working on the company's efforts to emerge from bankruptcy, said in a statement it was in the best interest of the company for him to resign.
A source familiar with Salsbury's decision said the general counsel resigned because he did not want his ties to the past leadership of the company to mar reorganization efforts.
Although Salsbury oversaw mostly public policy and regulatory issues and was not responsible for the company's financial transactions, he was corporate counsel during a questionable time in the company's history, the source said.
Mayer could not immediately be reached for comment.
Last year, Mayer was sued by 22 banks that gave WorldCom a $2.65 billion credit line in 2001. The banks contended that she misrepresented the company's financial condition when she signed the loan agreements.
One report, compiled by former U.S. Attorney General Richard Thornburgh, an independent examiner appointed by the Bankruptcy Court, concluded that Mayer and top executives knew about WorldCom's true financial health while preparing loan documents for the banks.
WorldCom had lax internal controls, limited oversight by its board of directors and a corporate culture in which Ebbers and former chief financial officer Scott Sullivan ran the company unchecked, according to the report, released on Monday.
A second report compiled by William McLucas, former chief of the enforcement division of the U.S. Securities and Exchange Commission (news - web sites), on Monday tied Ebbers to the scandal for the first time by saying he knew the company artificially inflated its revenues.
"THE BANKS DID NOT KNOW"
The lenders claimed in their suit that when WorldCom decided to borrow money under that credit line a year later, it failed to disclose $408 million in loans it gave Ebbers and lied about how it would use the money, the report said.
Mayer prepared the documents asserting that WorldCom was in compliance with its credit agreement, the report said.
Under the credit pact's terms, WorldCom was required to fairly disclose its financial health and refrain from any "material transactions" with affiliates. In addition to providing inaccurate financial reports, WorldCom failed to tell the banks about its loans to Ebbers, the report said.
"WorldCom's own treasurer told the examiner that, in her opinion, the lenders thought that the company had more cash on hand than it actually did as of May 2002," the report said.
Thornburgh said in his report that Mayer said "she believed the banks did not know how tightly the company was managing its cash.
"She also reportedly told one former board member that WorldCom would have been completely out of cash on May 31, 2002, if it had not borrowed under the credit agreement," the report said.
WorldCom lenders' also asserted that the company failed to disclose how it planned to use the funds, the report said.
In May 2002, WorldCom said it would borrow against the $2.65 billion credit line, but keep the money as cash on its balance sheet.
Instead of keeping the cash, however, WorldCom used the money to pay off a credit line that had the company's "accounts receivable," or the money owed by customers, as collateral, the report said.
"The treasurer said 'WorldCom was, through the drawdown, essentially 'Robbing Peter to pay Paul"' according to the report. "The treasurer stated at the time we 'pay back the A/R (accounts receivable) facility at that time and the outside world doesn't know that we need the bank draw to payback the A/R."' |
