WorldCom Inc now has a court-appointed babysitter at an hourly rate of US$800.
He is Richard Breeden, former Securities and Exchange Commission (SEC) chairman, and his charge is to make sure WorldCom, which last week admitted to misreporting US$3.85 billion in expenses and is being sued by the government for fraud, doesn't pay its executives too much or destroy documents.
US District Judge Jed Rakoff took the unusual step of appointing Breeden in response to an SEC request for someone to watch over WorldCom, a measure the second-biggest US long-distance telephone company supported.
"I want a hands-on monitor," Rakoff said at a hearing in Manhattan. "I want a monitor who will report to me what's going on, and will feel free to look into any nook and cranny."
Breeden said after the hearing: "I'm not there to replace management. I'm there to be the eyes and ears of the court. Obviously, a great many investors and a great many employees have an enormous interest in trying to salvage this company."
Survival was also on the mind of WorldCom chief executive John Sidgmore on Wednesday, who said he's talking with banks to avoid bankruptcy. A US$2 billion bond repayment early next year may be "problematic," he told a news conference.
Sidgmore said the Clinton, Mississippi-based company would cut at least 17,000 jobs and may try to sell Asian operations and wireless assets and businesses in Latin America.
WorldCom shares, which have fallen 98 percent this year, rose US$0.12 to US$0.22.
The SEC last week accused WorldCom of fraud for concealing some costs as capital expenses and fabricating profits over the past five quarters. WorldCom has extended an accounting investigation as far back as 1999 and said it may be forced to repay a US$2.65 billion loan after defaulting on bank agreements.
Sidgmore said he had "no idea" whether former chief executive officer Bernard Ebbers knew of the misreported costs. Sidgmore took over the company when Ebbers was ousted in April.
SEC Chairman Harvey Pitt said in a statement this week that a WorldCom report to the agency, describing the events leading to its financial restatement of results, was "wholly inadequate and incomplete."
WorldCom is the biggest company ever to have a monitor appointed outside of bankruptcy court. Legal experts said the SEC is reacting faster after officials of bankrupt Enron Corp got millions of dollars in severance payments and Arthur Andersen LLP was convicted of obstruction of justice in a case that stemmed from shredding Enron documents.
"This case shows the SEC can and will, when appropriate, move quickly and effectively to combat financial fraud," said Peter Bresnan, the SEC's deputy chief litigation counsel and lead trial attorney on the case.
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