The US Securities & Exchange Commission wants to find out whether the company manipulated its earnings to keep Wall Street and investors happy by hiding a mountain of debt and report a profit of $2.3bn in 2001 when it in fact lost $662m.
‘In a scheme directed and approved by its senior management, WorldCom disguised its true operating performance by using undisclosed and improper accounting,’ the SEC lawsuit charged.
Yesterday the SEC said: ‘The public can be assured that we are actively investigating these and other events relating to the veracity of WorldCom’s financial statements and disclosures.’
At the same time it is also understood the US Department of Justice, which successfully convicted Andersen of obstruction of justice earlier this month, was considering filing a civil suit against the company in a federal court.
The federal charge against WorldCom follows anger expressed throughout the American and global business community at the misreporting, and a fall in worldwide stock markets and telecom-related stocks. It also follows public condemnation from president George Bush and US Treasury secretary Paul O’Neill.
The root of WorldCom’s fraud stems from its decision to book operating expenses as long-term capital investments – assets in simple terms – masking its true financial position.
WorldCom is now widely expected to file for Chapter 11 Bankruptcy protection. Already 17,000 employees, including 2,500 in the UK alone, are set to be made redundant – possibly as soon as the end of this week.
The company is to restate its accounts for the 2001 tax year and the first quarter of 2002.
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