Tuesday, July 09, 2002

WorldCom, Andersen exchange accusations

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Enquirer staff and news services

        WASHINGTON — WorldCom executives clashed with former auditors Monday over responsibility for almost $4 billion in accounting improprieties that rocked U.S. markets, as two former officials for the communications giant declined to testify to House investigators.

        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 understood that WorldCom's former chief financial officer, Scott Sullivan, had acknowledged that he never told the accounting firm about the questionable bookkeeping.

        Mr. 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 lawyer, Reid Weingarten, advised him to remain silent because of investigations by the Justice Department and Securities and Exchange Commission.

        “I do not believe I have anything to hide,” Mr. Ebbers said, urging lawmakers not to draw a negative inference from that decision. When all the facts are out, he said, “I believe that no one will conclude that I engaged in any criminal or fraudulent conduct.”

        Mr. Ebbers, who resigned in April, said he couldn't testify because he had “not been advised of the specific conduct of mine that has been called into question.”

        Mr. Ebbers' statement led Rep. Max Sandlin, a Texas Democrat, and others to demand that the former CEO be held in contempt for refusing to testify, saying the statement constituted a waiver of his constitutional privilege against self-incrimination.

        Mr. Sandlin said it was “outrageous” for Mr. Ebbers to defend himself in a statement while refusing to answer questions.

        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.

        John Sidgmore, WorldCom's president and chief executive, blamed the company's former management for the accounting problems.

        “WorldCom uncovered this problem internally,” Mr. 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.”

        Mr. 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.

        Mr. Dick, the senior Andersen audit partner for WorldCom, testified that neither he nor any member of the Andersen team “had any inkling” of the improper accounting.

        Rep. Barney Frank, D-Mass., lashed out at Mr. Dick, saying, “I congratulate you on your ability to evade so calmly.”

        Said Rep. Michael Oxley, an Ohio Republican who is chairman of the committee: “The consequences to this sort of criminal activity, should it be proved, should be severe, and it may mean time in federal prison.”

        WorldCom, whose interests include No. 2 long-distance telephone company MCI, is battling to avoid bankruptcy after disclosing that it disguised $3.8 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 23 cents Monday.

        Wall Street analyst Jack Grubman, who promoted WorldCom stock, said in prepared testimony, “I regret that I was wrong in rating WorldCom highly for too long.”

        Mr. Grubman 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.


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