JACKSON, Miss. -- With his company facing federal fraud charges and potential bankruptcy, WorldCom CEO John Sidgmore vowed to continue cutting costs following the revelation that the company hid $3.8 billion in expenses from investors.
In a taped Webcast on Wednesday evening, Sidgmore called the accounting disclosure "an undeniable setback" for the nation's No. 2 long distance provider and telecommunications giant.
But Sidgmore said he was moving forward with plans to make the company leaner and simpler, a process that will involve laying off as many as 17,000 people beginning Friday. That amounts to about 20 percent of its work force.
He said the sale of certain assets and other cost-cutting measures would be forthcoming, but he didn't mention something that some industry observers believe is inevitable -- a bankruptcy filing.
"This has been a very tough week for WorldCom, there's no doubt about it," said Sidgmore, who replaced ousted WorldCom founder Bernard Ebbers in April.
"We're going to continue to make the kinds of aggressive changes that are required to strengthen this company," he said.
One of those changes was the firing of former chief financial officer Scott Sullivan, who appears to be at the center of Tuesday's accounting disclosure.
WorldCom reported that $3.8 billion was wrongly listed on its books as capital expenses in 2001 and 2002. That means WorldCom may have actually lost millions of dollars when it reported profits.
The news sent stocks plunging and prompted President Bush to vow to "hold people accountable."
Securities and Exchange Commission Chairman Harvey Pitt said late Wednesday the agency had filed fraud charges against WorldCom in federal district court in New York. He said the filing was intended in part to prevent the company from destroying documents or making payouts to WorldCom executives while the SEC investigates. He did not elaborate further.
Pitt said the action against WorldCom was "an attempt to restore the understandably lost credibility that people have in what they are hearing and reading."
Analysts warned that WorldCom could declare bankruptcy within a week, dwarfing the collapse of Enron Corp. that has triggered a wave of corporate scandals.
With more than $100 billion in assets reported at the end of March, a WorldCom bankruptcy would be twice as large as Enron's record-setting slide into Chapter 11 last fall.
"In order to avoid an immediate shutdown, leaving lots of customers in the lurch, they'd have to file for bankruptcy," Alec P. Ostrow, a partner in the bankruptcy law firm of Salomon, Green & Ostrow in New York.
Arthur Andersen served as WorldCom's accountant during the period in question. The accounting firm, once one of the world's largest, was convicted earlier this month for the destruction of documents related to its work for Enron.
Andersen blamed WorldCom for the inaccuracies and said its work was in compliance with SEC standards.
But accounting experts disagreed. Bob Bertucelli, director of the tax institute at Long Island University in New York, said there's no way that such an accounting error should have gotten past Andersen's audit.
"The auditor is responsible for everything that goes on, whether it's discussed with the auditing firm or not," Bertucelli said. "It should have been found. It's a clear cut violation of generally accepted accounting principles."
Officials at the Nasdaq market halted trading in the two stocks used to represent WorldCom's business. WorldCom Group, which consists of the operations that provide data and telephone services to big businesses, last traded at 83 cents, down from a 52-week high of $16.06. MCI Group, which tracks the consumer long-distance unit, last traded at $1.68, down from as high as $17.33 in the past year.
WorldCom's stock, one of the better performers of the late 1990s, has stumbled since then over concerns about the company's $32 billion in debt, slowing revenues and the SEC investigation. Also drawing scrutiny and investor displeasure were $408 million in loans WorldCom had given to former CEO Ebbers.
Efforts to reach Ebbers and Sullivan were unsuccessful.
In an interview after his ouster in April, Ebbers defended the company's accounting practices in the wake of the SEC investigation.
"Our accounting, to the best of my knowledge, is absolutely clean," Ebbers told WLBT-TV in Jackson.
WorldCom, second to only AT&T in the long-distance market, grew from a small telephone company into one of the telecom industry's biggest players through more than 60 acquisitions over the past 15 years.
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