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

To: Glenn Petersen who wrote (2953)	3/13/2004 2:59:37 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 3602

Restatements Detail WorldCom Deception Telecommunications Company Uncovers Improper Accounting Totaling $74.4 Billion washingtonpost.com By Christopher Stern Washington Post Staff Writer Saturday, March 13, 2004; Page E01 In 2000 and 2001, when WorldCom Inc. was telling investors that it was a profitable and growing company, the telecommunications giant actually lost $64.5 billion, according to revised financial statements released by the company yesterday. The new statements provide more detail about the aggressive accounting and outright fraud used to disguise the company's sagging fortunes as the telecommunications boom of the late 1990s started to stall. WorldCom executives said they hope the revisions will restore confidence in the company's accounting as the Ashburn-based Internet and long-distance giant prepares to emerge from bankruptcy next month. The company spent $150 million on the restatement project, the largest effort of its kind ever. A team of more than 500 accountants, auditors and consultants has been poring over the numbers since the company filed for bankruptcy in July 2002. "This is the seminal document from the point of view of reporting the final restatement," said WorldCom Chief Financial Officer Robert T. Blakely. "This is the Mount Everest, if you will." The new financial statements come as WorldCom announced an unusual deal to settle state criminal charges in Oklahoma related to its irregular accounting. WorldCom said it agreed to create 1,600 jobs in that state over the next 10 years. WorldCom has been working hard to resolve its legal troubles before it comes out of bankruptcy and formally takes on the name of its long-distance subsidiary, MCI. In Securities and Exchange Commission filings made public yesterday, the company said it uncovered $74.4 billion in improper accounting, much of which was due to a failure to write down about $60 billion in soured investments. In addition, the company said it had incorrectly claimed $4.8 billion in regular expenses as capital investments. The company also revealed that it improperly overvalued several acquisitions by a total of $5.8 billion. Last week, former WorldCom chief financial officer Scott D. Sullivan pleaded guilty to securities fraud related to the company's accounting problems. Sullivan admitted that he orchestrated an effort to claim the regular expenses of leasing lines from local telephone companies as capital investments to help the company look profitable when it was losing money. Regular expenses must be deducted from the bottom line immediately. Capital investments can be depreciated over a longer period. In 2001, the company claimed it had a pre-tax income of $2.4 billion, which it restated to a $14.5 billion loss. In 2000, the company claimed a pre-tax income of $7.6 billion, which it restated to a stunning $49.9 billion loss. For the year 2002, the company reported revenue of $32.2 billion and a loss of $9.1 billion. Despite its sagging fortunes, the company agreed to hire workers in Oklahoma as part of a settlement negotiated with state Attorney General Drew Edmondson. Edmondson filed charges against WorldCom and several former employees related to its improper accounting. Edmondson dropped the charges against former chief executive Bernard J. Ebbers in November after federal prosecutors said the state case could interfere with their investigation. Last week, federal authorities charged Ebbers with conspiracy, securities fraud and filing false documents with the Securities and Exchange Commission. Under the terms of the deal, the company agreed to add 160 jobs a year with an average annual salary of $35,000 each year for the next 10 years. WorldCom employs about 2,000 people in Tulsa, but at its peak the company had 4,600 workers at the facility. Like other WorldCom operations around the country, the Tulsa office has endured its share of layoffs as the telecommunications industry suffered through a severe downturn. To meet its commitment in Oklahoma, WorldCom, which has a workforce of 54,000, will likely have to shift jobs from elsewhere, according to Drake Johnstone, a telecommunications analyst with Davenport & Co. "WorldCom is shrinking. I think it is pretty bold to say they are creating jobs," he said. Some legal experts said the deal could raise a dangerous precedent, perhaps putting pressure on other state prosecutors to file charges against WorldCom or other companies. "You are taking jobs from some other state. It creates something of a perverse incentive by state prosecutors to seek increased employment or a ban on layoffs," said John C. Coffee Jr., director of the Center on Corporate Governance at the Columbia Law School. Charlie Price, a spokesman for Edmondson, said the settlement is not an attempt to set broad public policies. "Our job is to represent our client, the state of Oklahoma, and we did that to the best of our abilities." WorldCom has already agreed to pay $750 million in restitution as part of a separate deal to settle charges filed by the SEC. Under the terms of that agreement, the company agreed to create a fund for investors who could prove they were harmed by the fraud. © 2004 The Washington Post Company