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Tuesday, July 2, 2002

Investors dumped more than 1.4 billion shares of WorldCom stock, beating all previous records for daily trading volume of a single company's shares and effectively counting for nearly half of the entire daily volume of the Nasdaq. Shares of WorldCom closed at 7 cents a share or a drop of more than 92 percent on the day.

The company also announced that it had formally defaulted on up to $4.2 billion in loans as of Monday.

The embattled telecom giant also on Monday outlined for the government the company's recent accounting debacle of a $4 billion earnings misstatement and said that it was continuing to review its financial records from 1999 to 2001 for additional malfeasances.

In a sworn statement to the U.S. Securities and Exchange Commission, WorldCom said that its audit committee was reviewing records. "In particular, questions have been raised regarding certain material reversals of reserve accounts during 2000 and 1999.

"No conclusion has been reached regarding these entries," the statement said.

The SEC ordered WorldCom to submit a sworn report after the federal securities watchdog filed civil fraud charges against the company last week in response to the company revealing that it artificially inflated its earnings by $3.8 billion by moving items from the expenses side of its balance sheet to its capital accounts column.

"During May 2002, Cynthia Cooper, vice president, internal audit, began an investigation of certain of the company's capital expenditures and capital accounts," the WorldCom statement read. "Ms. Cooper determined that a number of questionable transfers had been made into company's capital accounts during 2001 and the first quarter of 2002."

The report to the SEC outlined how this discovery led to a further investigation by the company and a meeting of the board June 25 and notification of the SEC that afternoon regarding the multibillion inflation of earnings. WorldCom fired its Chief Financial Officer Scott Sullivan.

In comments on NBC's "Today" on Monday morning, SEC head Harvey Pitt said that though he didn't want to "prejudge any case ... from what I've heard, I'm outraged. Criminal charges may be too good for the people who brought this mess."

In addition to the SEC investigation, the FBI announced it was investigating the alleged fraud, and at least two congressional committees have announced hearings.

WorldCom began layoffs Friday of up to 17,000, or 20 percent, of its staff to cut costs while the company attempts to survive amid the fraud charges, a crushing $30 billion debt, and quickly approaching bankruptcy.

President Bush said in his Saturday radio address that though the U.S. economy remains sound, "a few bad actors can tarnish our entire free enterprise system" and called for rules and laws "that restore faith in the integrity of American business."

Bush said that the administration would fully investigate corporate fraud and "hold the guilty parties accountable," and "executives who commit fraud will face financial penalties, and, when they are guilty of criminal wrongdoing, they will face jail time."

Copyright 2002 by United Press International.

All rights reserved.

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