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Tuesday, 9 July, 2002, 02:34 GMT 03:34 UK
WorldCom chiefs silent over scandal
Andersen's Melvin Dick, WorldCom's ex-CEO Bernie Ebbers and ex-CFO Scott Sullivan, and analyst Jack Grubman
Two out of four witnesses refused to testify
Former top executives of disgraced US telecoms giant WorldCom refused to testify as a congressional panel began examining the company's multi-billion dollar accounting scandal.

At the hearing into how $3.8bn (2.5bn) in accounting irregularities could have gone unnoticed for more than a year, committee members spoke critically of recent business scandals, saying investors had been let down by greed, incompetence and fraud.


It looks like you were General Custer and WorldCom was the Indians, and you got slaughtered

Rep. Sue Kelly, New York Democrat, to Andersen's Mel Dick
Fresh from a scathing inquiry into collapsed energy firm Enron, the panel is trying to establish which, if any, laws were broken by WorldCom and to what extent the current law needs tightening.

At the same time, Democrats in the Senate are attempting to pass a tough bill regulating the accounting industry, while on Tuesday President George W Bush is to outline his own - slightly more lenient - vision of corporate regulation.

Taking the Fifth

Opening the hearing, Ohio Republican Michael Oxley said it appeared that senior executives had hidden expenses of almost $4bn, disguising the company's true performance.

"Make no mistake, the consequences to this sort of criminal activity...should be severe, and that may mean time in federal prison," Mr Oxley said.

As expected, former WorldCom chief executive and founder Bernie Ebbers and ex-chief financial officer Scott Sullivan refused to testify.
Former WorldCom CEO Bernie Ebbers
Ebbers hoped to avoid "negative inferences"

Mr Ebbers, who resigned in April, two months before WorldCom admitted its accounts for 2001 and 2002 were wrong, claimed his Fifth Amendment right to remain silent on the basis that he might incriminate himself by testifying.

But he did proclaim his innocence.

"When all of the activities at WorldCom are fully aired... I believe that no one will conclude that I engaged in any criminal or fraudulent conduct," he said.

His statement provoked outrage among some committee members who said that he had waived his rights and should be compelled to testify.

The BBC's Ian Pannell in Washington says it was a day of furious buck-passing, with company officials and auditors blaming each other for the huge accounting hole.

Auditing the auditors

In a prepared testimony, newly installed WorldCom president John Sidgmore, who has expressed willingness to help investigators, implied the failure to spot the accounting irregularities was the fault of the external auditors, Arthur Andersen.

"In effect, we audited our external auditors, we found what they missed and promptly brought this matter to the attention of the Securities and Exchange Commission (SEC)," he said.

But former Andersen employee Mel Dick rejected this view.

Former Arthur Andersen auditor Mel Dick
Dick: "Never an inkling" there was anything wrong

"In performing our work, we relied on the integrity and professionalism of WorldCom's senior management," Mr Dick said.

Under fierce questioning, he told the committee that it was entirely reasonable for Andersen to miss the figures amid "thousands and thousands" of transactions.

"We did our audit in accordance with all the things we were expected to do," he said.

That was not enough for New York Democrat Sue Kelly, who told Mr Dick: "It looks like you were General Custer and WorldCom was the Indians, and you got slaughtered."

Telecoms analyst Jack Grubman - who championed WorldCom on Wall Street for years - told the hearing he had no idea that the company had dug itself such a hole.

Mr Grubman downgraded WorldCom's stock just before the problems became public, but he described as "categorically false" speculation that he had inside knowledge of the accounting woes.

In recent months, there have been a number of congressional hearings into the way companies are run and audited, particularly in relation to Enron.

But Congress has so far produced little in the way of tangible results.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Stephen Evans reports from Washington
"The hearings here are really about politics"
Bernie Ebbers, founder and former CEO of WorldCom
"I am proud of the work I did at WorldCom."
WorldCom

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08 Jul 02 | Americas
08 Jul 02 | Business
05 Jul 02 | Business
02 Jul 02 | Business
30 Jun 02 | Business
28 Jun 02 | Business
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