WorldCom Formally Charged With Fraud
WorldCom today moved closer to bankruptcy as US regulators formally charged the telecoms giant with fraud by inflating its profits through improper accounting.
One day after WorldCom rocked the markets with America's latest financial mega scandal, the securities and exchange commission (SEC), filed a civil lawsuit in federal court in New York accusing WorldCom of manipulating its earnings to keep them in line with Wall Street's expectations.
The SEC said that WorldCom engaged in a scheme "directed and approved by its senior management," that allowed it to fraudulently report 2001 cash flow of $2.3bn, (£1.5bn) rather than its actual loss of $662m. In the first quarter of 2002, WorldCom incorrectly reported cash flow of $240m, rather than a loss of about $557m.
Seeking to pre-empt the shredding of important documents that occurred in the Enron scandal last year, the SEC asked the court to block WorldCom from destroying or altering any documents, or making any extraordinary payments to executives. The SEC said it would also seek financial penalties against the company.
In a scandal that threatens to eclipse Enron, WorldCom shook the markets yesterday when it admitted reporting expenses as long-term capital investments, an accounting sleight of hand that had the effect of inflating profits by $3.8bn. Asian and European markets today firmed up, buoyed by a late bounce on Wall Street that erased most of a 200-point drop.
The SEC action could deal a fatal blow to WorldCom's efforts to secure $5bn in new financing and push it into bankruptcy. The company is weighed down with $30bn of debt and unless it finds new financing, it will be unable to cover interest payments.
Seeking to put the best possible light on WorldCom, Enron and other financial scandals, President George Bush said that they were not representative of American business.
Speaking at the G8 summit of industrialised leaders in Canada, Mr Bush said: "The good news is most corporate leaders in America are good, honest, open people who care deeply about shareholders and employees."
One day after WorldCom rocked the markets with America's latest financial mega scandal, the securities and exchange commission (SEC), filed a civil lawsuit in federal court in New York accusing WorldCom of manipulating its earnings to keep them in line with Wall Street's expectations.
The SEC said that WorldCom engaged in a scheme "directed and approved by its senior management," that allowed it to fraudulently report 2001 cash flow of $2.3bn, (£1.5bn) rather than its actual loss of $662m. In the first quarter of 2002, WorldCom incorrectly reported cash flow of $240m, rather than a loss of about $557m.
Seeking to pre-empt the shredding of important documents that occurred in the Enron scandal last year, the SEC asked the court to block WorldCom from destroying or altering any documents, or making any extraordinary payments to executives. The SEC said it would also seek financial penalties against the company.
In a scandal that threatens to eclipse Enron, WorldCom shook the markets yesterday when it admitted reporting expenses as long-term capital investments, an accounting sleight of hand that had the effect of inflating profits by $3.8bn. Asian and European markets today firmed up, buoyed by a late bounce on Wall Street that erased most of a 200-point drop.
The SEC action could deal a fatal blow to WorldCom's efforts to secure $5bn in new financing and push it into bankruptcy. The company is weighed down with $30bn of debt and unless it finds new financing, it will be unable to cover interest payments.
Seeking to put the best possible light on WorldCom, Enron and other financial scandals, President George Bush said that they were not representative of American business.
Speaking at the G8 summit of industrialised leaders in Canada, Mr Bush said: "The good news is most corporate leaders in America are good, honest, open people who care deeply about shareholders and employees."
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