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Wednesday, 26 June, 2002, 21:27 GMT 22:27 UK
US telecoms giant admits huge fraud
A multi-billion dollar accounting fraud has taken place at WorldCom, the number two US long-distance phone company.

President George W Bush condemned the fraud as "outrageous" and vowed to address the problems shaking corporate America.

WorldCom said its profits between January 2001 and March 2002 had been inflated by $3.8bn (2.5bn).

The scandals that shook Wall Street
Enron's accounts turned out to be an elaborate scam
Andersen approved the WorldCom and Enron accounts
Other firms under fire: Xerox, Adelphia, Tyco, Global Crossing

In an immediate attempt to salvage some of its business, the firm has announced 17,000 redundancies and sacked its chief financial officer, Scott Sullivan.

The fraud is far bigger in money terms than Enron's misdeeds, and will further undermine the trust of investors in corporate America.

The US dollar lost strength and share prices around the world plummeted on Wednesday, although the greenback and Wall Street later recovered lost ground.

US financial watchdog the Securities and Exchange Commission said WorldCom's accounting improprieties were of "unprecedented magnitude".

The news is also another damning indictment of auditor Andersen which was responsible for approving the accounts of WorldCom as well as Enron.

Trouble at the top

WorldCom was one of the pioneers of the 1990s telecoms boom.

An aggressive acquisition spree saw it grow from a small-time regional operator in the early 1980s to a huge international business, but also saddled it with $30bn of debt.

WorldCom founder and former CEO Bernie Ebbers
Founder Bernie Ebbers was forced to quit in April

The firm was already shrouded in scandal after the departure of its founder and chief executive, Bernie Ebbers, in April.

Mr Ebbers borrowed hundreds of millions of dollars from the firm to underwrite the inflated prices he had paid for the company's own shares.

WorldCom shares have tumbled from a high of more than $60 in 1999 to 83 cents this week.

Trading on the stock on the Nasdaq market was suspended on Wednesday,

The shares had hit 10 cents in pre-opening trade,

Secret actions

The scandal broke on Tuesday, when the company said it had not actually made the $1.4bn of profits it reported in 2001, nor the $130m stated during the first three months of 2002.


This is the age where wheeler-dealers get called for who they are

Frank Dzubeck
Telecoms consultant

WorldCom said its chief financial officer Scott Sullivan improperly booked expenses as investment in order to make the company look much healthier than it actually was.

John Sidgmore, who took over from Mr Ebbers at the top, said executives were "shocked by the discoveries".

Andersen is protesting its innocence, saying Mr Sullivan did not let on what he was doing.

The SEC added: "We are ordering the company to file, under oath, a detailed report of the circumstances and specifics of these matters."

Game's up

Bankruptcy now looks like a serious possibility for the telecoms firm as its refinancing talks will be thrown into disarray.

But some observers were unsurprised by the company's news.

"When you look at the history of WorldCom, and their acquisition trail, you have a classic wheeler-dealer," said Frank Dzubeck, president of the Communications Network Architects consultancy.

"Now this is the age where wheeler-dealers get called for who they are," he said.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Stephen Sackur
"Something is rotten at the heart of American capitalism"
The BBC's Rory Cellan-Jones
"WorldCom employs 2.5 thousand people in Britain"
Former chair of US SEC Arthur Levitt
"Clearly the accounting industry... is now going to be the object of great criticism"
WorldCom

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26 Jun 02 | Business
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07 Feb 02 | Business
08 Feb 01 | Business
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