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Tuesday, July 9, 2002

The House Financial Services Committee, led by Rep. Michael Oxley, R-Ohio, is investigating the company's earnings misstatement of more than $3.8 billion.

"I served as CEO of WorldCom for 17 years," Ebbers told the committee. "I am proud of the work I did for WorldCom.

"Although I would like to testify more than you know, I have decided after careful consideration to take the advice of my counsel."

Ebbers cited the range of investigations, which includes investigations by the U.S. Securities and Exchange Commission, the Justice Department, and so far at least two congressional panels, as the reason for not testifying.

Ebbers said that when the investigations were concluded, "no one will conclude that I engaged in any criminal or fraudulent conduct during my tenure at WorldCom."

Oxley said in an opening statement that the "consequences to this sort of criminal activity, should it be proved, should be severe, and that may mean time in federal prison."

Rep. Bernie Sanders, I-Vt., said that as Ebbers had made a "positive statement" prior to invoking his Fifth Amendment rights, the former CEO should submit to questioning, or be "held in contempt" of Congress.

Throughout the hours-long hearing, Ebbers and Sullivan repeatedly invoked the Fifth Amendment in response to increasingly contentious and heated questions from members of the House Financial Services Committee.

Blaming Andersen

Meanwhile, John Sidgmore, WorldCom's president and chief executive officer, blamed the company's former auditor, Arthur Andersen, for one of the biggest accounting scandals in U.S. history.

"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."

WorldCom Chairman Bert Roberts called the accounting improprieties "an outrage." He blamed Andersen. "To my mind, the failure of our outside auditors to uncover them is inconceivable," he said.

Former Andersen partner Melvin Dick, though, noted that auditors rely "on the honesty and integrity of the management of the company." Sullivan has admitted he never told the accounting firm about questionable bookkeeping, Dick said.

Dick testified that neither he nor anyone on the Andersen team "had any inkling" of the improper accounting.

Rep. Barney Frank, D-Mass., snapped at Dick, "I congratulate you on your ability to evade so calmly."

The hearing comes as the Clinton, Miss., telecom company is battling bankruptcy and federal investigations.

Oxley, noting that the hearings closely follow the recent Enron accounting scandal, said, "The latest company to abuse the public trust is WorldCom. The announcement of this fraud turned WorldCom from a world-beater into a penny stock and forced it to lay off thousands of blameless employees.

"If these charges are proven, WorldCom executives who participated in the fraud should have to return any profits from stock sales made during the five quarters of misreported earnings."

Two witnesses who had been subpoenaed to testify at the House hearing Monday into WorldCom are no longer expected to appear, a committee spokeswoman told United Press International.

Cynthia Cooper, WorldCom's vice president for internal audit, and Audit Committee Chairman Max Bobbitt have been dropped from the witness list. House Financial Services Committee spokeswoman Peggy Peterson said they were dropped "because their testimony could potentially damage ongoing investigations."

Peterson said Oxley has issued a subpoena for David F. Meyers, a former WorldCom senior vice president and controller, to appear before the committee next week.

On June 25, WorldCom disclosed that it had improperly accounted for operating expenses as capital expenditures, thus overstating profits by over $3.8 billion in the past five quarters.

With news of the accounting scandal, the company's stock now trades around 25 cents a share and the telecom giant is fighting to avoid bankruptcy.

Copyright © 2002 United Press International

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