WorldCom executives, former auditors clash
WASHINGTON (AP) – WorldCom executives clashed with former auditors Monday over responsibility for nearly $4 billion in accounting improprieties that rocked U.S. markets. The telecommunications giant’s former CEO and finance chief refused to testify to a House panel investigating the debacle. WorldCom Chairman Bert Roberts called auditor Arthur Andersen’s failure to uncover the irregularities “inconceivable.”
Former Andersen partner Melvin Dick countered that auditors rely “on the honesty and integrity of the management of the company.” He said he understands WorldCom’s former chief financial officer, Scott Sullivan, has acknowledged he never told the accounting firm about the questionable bookkeeping.
Sullivan invoked his Fifth Amendment right against self-incrimination before a packed hearing of the House Financial Services Committee, saying he was doing so “based upon the advice of counsel.”
WorldCom’s former chief executive officer, Bernard Ebbers, did the same, saying his Washington attorney, Reid Weingarten, advised him to remain silent because of ongoing investigations by the Justice Department and the Securities and Exchange Commission.
“I do not believe I have anything to hide,” Ebbers said. When all the facts are out, he said, “I believe that no one will conclude that I engaged in any criminal or fraudulent conduct.”
Members of the panel – Democrats and Republicans alike – attacked the company, the Andersen accounting firm and Wall Street analyst Jack Grubman, who promoted WorldCom stock.
Several grilled company founder Ebbers, asking for example about the $400 million in loans he received from WorldCom and his $1.5 million severance package. Ebbers, sitting stonily with arms crossed, repeatedly cited his Fifth Amendment privilege and said he would not answer.
WorldCom is the latest major corporation to face allegations of executive wrongdoing and accounting irregularities – driving down public confidence in business and the stock market.
Congress already is investigating the bankruptcies of Enron Corp. and telecommunications company Global Crossing and the role played by accounting firms. Andersen has been convicted of obstruction of justice for destroying Enron-related documents.
Just Monday, pharmaceutical titan Merck & Co. revealed that in the past three years, it had counted $12 billion in revenue that it never collected.
Trying to shore up investor confidence, President Bush is proposing tougher penalties – including jail time – for corporate officials who lie on financial statements, an administration official said Monday.
The White House planned to endorse the goals – but not all the details – of legislation now before the Senate written by Banking Committee Chairman Paul Sarbanes, D-Md., that would tighten oversight of the accounting industry. The administration wants to empower the SEC to ban corporate executives and directors who commit wrongdoing from serving in those roles again, a step the bill does not take, but which Democrats support.
John Sidgmore, WorldCom’s president and chief executive officer, blamed the company’s former management for the accounting problems.
“WorldCom uncovered this problem internally,” Sidgmore said in prepared testimony. “The kind of initiative demonstrated by our internal audit group is to be applauded and will continue to be encouraged.”
Roberts called the accounting improprieties “an outrage to me,” and said Andersen was responsible. “To my mind, the failure of our outside auditors to uncover them is inconceivable,” WorldCom’s chairman said.
Dick, the senior Andersen audit partner for WorldCom, testified that neither he nor anyone on the Andersen team “had any inkling” of the improper accounting.
Rep. Barney Frank, D-Mass., lashed out at Dick, saying, “I congratulate you on your ability to evade so calmly.”
WorldCom, whose interests include No. 2 long-distance telephone company MCI, is battling to avoid bankruptcy after disclosing it disguised $3.9 billion of expenses as capital expenditures to appear more profitable.
The SEC has filed a civil fraud suit against WorldCom, and the Nasdaq Stock Market plans to delist the company’s shares, which have plunged from more than $63 in June 1999 to 22 cents Monday.
Said Grubman, the financial analyst: “I regret that I was wrong in rating WorldCom highly for too long.” He insisted he did not know the company’s true financial condition and had no advance knowledge of the huge earnings misstatement before downgrading his recommendation for WorldCom stock June 21.
The Business Roundtable, a group of chief executive officers of major corporations, endorsed the SEC’s new rule requiring top corporate officials to certify financial statements are accurate, as well as congressional legislation to tighten oversight of the accounting industry.
The House committee chairman, Rep. Michael Oxley, R-Ohio, said no other company in the recent wave of corporate scandals “has yet shown the audacity to commit fraud on the scale that has been alleged here.”
The panel’s top Democrat, Rep. John LaFalce of New York, said he hopes “President Bush after a year and a half … will finally join with us in trying to effectuate these reforms.”
A string of lawmakers, including Senate Majority Leader Tom Daschle, D-S.D., Sen. John McCain, R-Ariz., and Rep. John Conyers of Michigan, the House Judiciary Committee’s top Democrat, has called for the resignation of SEC Chairman Harvey Pitt, in part because of his former ties to the accounting profession.
Rep. Spencer Bachus, R-Ala., a staunch administration supporter, said Monday, “There is now some question” whether Pitt is the right person to head the market watchdog agency.
The White House said the criticisms were “without merit.”