WorldCom execs on the hot seat; House probes telecom's finances
Copyright 2002 P.G. Publishing Co.
The scene seems all too familiar now: tense former executives sitting stiffly side-by-side, waiting for congressmen to hurl harsh words and photographers to snap pictures as they testify.
But even after dozens of hearings into financial scandals this year, today's testimony before the House Financial Services Committee could prove extraordinary, providing new details into what may be the single biggest case of accounting fraud in history.
Bernard Ebbers, former chief executive officer of WorldCom Inc., will be asked to explain what he knew about the telecommunications giant's efforts to disguise more than $3.8 billion in expenses during 2001 and part of 2002.
The committee has subpoenaed Ebbers, along with two other top executives, Scott Sullivan, former chief financial officer, and David Myers, former controller. Neither one has declared whether he will exercise his constitutional right to silence.
If they do clam up, as did most Enron Corp. officials when asked about their accounting scandal, other WorldCom executives promise to tell what they know. WorldCom's new CEO John Sidgmore and board chairman Bert Roberts plan to testify, committee spokeswoman Peggy Peterson said yesterday.
She said the panel also expects cooperation from Melvin Dick, a former senior managing partner, from Arthur Andersen, the accounting firm that audited WorldCom's books during the period when billions in expenses were being hidden from shareholders.
Peterson said the committee will grill Jack Grubman, the telecommunications analyst for the Wall Street firm of Salomon Smith Barney Inc. Grubman continually urged investors to buy WorldCom stock, even as share prices were plunging. His critics say he was so close to WorldCom that he either knew, or should have known, that the company was deceiving its shareholders.
Two key figures who won't be at the hearing are Cynthia Cooper, the internal auditor who uncovered WorldCom's accounting irregularities, and Max Bobbit, who chairs the company's audit committee. Lawmakers decided not to seek their testimony, fearing it might compromise other government investigations.
The Securities and Exchange Commission already has sued WorldCom for fraud. The commission, the Justice Department and congressional investigators are digging into the accounting scandal that so far has led to about 17,000 layoffs at WorldCom and the near-complete collapse of the company's stock.
Appearing on "Fox News Sunday," House Financial Services Chairman Michael Oxley, R-Ohio, said he believes today's hearing is likely to reveal that WorldCom executives were "cooking the books … to basically hide what was a failing business" within the battered telecom industry.
Oxley said that despite the scandals that have flattened once-powerful companies such as Enron, WorldCom, Global Crossing Ltd., Tyco International Ltd. and others, he does not believe corruption is rampant in corporate America.
"I think it comes in cycles," and this happens to be one of those periods, he said. "I don't think it's as widespread, perhaps, as some people would believe, but clearly there's some real problems here."
Oxley is the chief sponsor of an accounting reform bill passed in April by the GOP-led House. This week, the Democratic-controlled Senate is expected to pass a much tougher version. If the Senate approves the legislation, a conference committee of House and Senate negotiators would have to craft a compromise to win final passage.
On ABC's "This Week," Sen. Paul Sarbanes, D-Md., said he will fight attempts in such a conference committee to water down the Senate accounting reform bill, which he chiefly wrote. "We'll be working very hard to make sure that it doesn't happen," he said.
But Oxley said that in a conference committee, he would be trying to ensure that Congress does not institute too many new regulations.