WorldCom fraud likely to exceed $7 billion previously reported

JACKSON, Miss. -- WorldCom Inc. took "extraordinary and illegal steps" to paint a rosy picture of its crumbling finances and committed accounting fraud that likely exceeded the more than $7 billion already disclosed to investors, according to a bankruptcy report.

Richard Thornburgh, a former U.S. attorney general appointed by the bankruptcy court to examine WorldCom's finances, also sternly criticized the telecommunications giant in the report Monday for making more than $1 billion in loans to the firm's former chief executive.

He said WorldCom's board never should have allowed former CEO Bernard Ebbers to leverage his company stock with the loans.

Thornburgh concluded that those responsible for the fraudulent practices include "the board of directors, the audit committee, the company's system of internal controls and the independent auditors."

Thornburgh excluded details of accounting manipulations because the company is the subject of civil and criminal proceedings.

WorldCom, which filed for bankruptcy protection in July after revealing accounting irregularities, said it is doubling its internal audit department staff, creating two new operational chief financial officer positions and hiring a new corporate controller.

"WorldCom's management and board are determined to ensure that what happened here in the past cannot recur," said John Sidgmore, WorldCom's president and chief executive.

The Justice Department and the Securities and Exchange Commission are investigating the accounting abuses, which have led to criminal charges against several former top executives.

The New York Times and the Wall Street Journal reported in Tuesday editions that the company is near a settlement with the SEC, which would ask a federal judge to dismiss its fraud case in exchange for the payment of fines and a permanent injunction barring WorldCom from violating securities laws.

The company and agency declined to comment.

Ebbers' attorney, Reid Weingarten, said Monday that he could not comment on Thornburgh's report because he had not reviewed it.

Thornburgh said his findings were preliminary. The report said further investigation is needed to determine why, for example, the pay of senior executives became significantly more lucrative in the two years before WorldCom declared bankruptcy.