WorldCom Inc was accused by the US Securities and Exchange Commission of fraud for hiding losses, pushing the company closer to a bankruptcy that would surpass Enron Corp's as the largest ever.
SEC Chairman Harvey Pitt said the agency would seek to stop payments to current or former WorldCom executives after the No. 2 US long-distance telephone company said it hid US$3.9 billion in costs. WorldCom borrowed US$30 billion during a 1990s buying binge and is having trouble repaying debt as demand slumps.
The SEC complaint alleged that WorldCom inflated profit since January 2001 to meet Wall Street analysts' forecasts. "In a scheme directed and approved by its senior management, WorldCom disguised its true operating performance by using undisclosed and improper accounting that materially overstated its income," the SEC contended in a filing in Manhattan Federal Court.
"This should be the easiest case to bring, given that the company has already admitted fraud," said Henry TC Hu, a corporate and securities law professor at the University of Texas law school.
WorldCom's banks will refuse to provide the company with a new US$5 billion credit agreement, people familiar with the matter said. The Clinton, Mississippi-based company needed the loans to replace existing credit lines and repay US$5.1 billion in bond debt maturing through 2004.
WorldCom yesterday said it had concealed the costs for more than a year and would restate earnings. The disclosure caused shares of telecommunications suppliers and lenders to fall and further shook investor confidence in corporate accounting in the wake of the bankruptcies of Enron Corp, Global Crossing Ltd and Adelphia Communications Corp.
Harvey pitt's charge
"We are committed both in word and in deed to taking every conceivable action to make sure a system that was allowed to go unimproved for far too long is now improved," Pitt said.
WorldCom spokeswoman Julie Moore said of the SEC's complaint that the company "cannot comment on pending litigation."
The company said it will cut 17,000 jobs to conserve cash.
President George W. Bush said the US will "go after" executives who mislead investors, and he called WorldCom's accounting practices "outrageous."
Senate Majority Leader Tom Daschle said he would push to create an accounting oversight board. Representative Billy Tauzin said the House energy and commerce committee he heads will open an investigation.
"The American equity market has taken on the flavor of a casino to many investors," said Timothy O'Brien, who manages US$265 million in the Evergreen Utility and Telecommunications Fund. The fund has no WorldCom shares.
WorldCom Chief Executive Officer John Sidgmore said the company will survive and emerge as "more competitive." He said WorldCom will be "forthcoming" as it restates earnings.
"That's the only way to restore our credibility in the market," Sidgmore said in videotaped comments that were streamed on WorldCom's Internet site.
WorldCom bond investors lost US$7.3 billion overnight. The company's notes and bonds plummeted to as little as US$0.14 on the dollar from as much as US$0.78. The bonds had a face amount of US$28 billion and are now worth about US$4.2 billion.
"Investors are concerned about another shoe dropping," said Bruce Allen, who helps manage US$300 million at Cascade Financial Management Inc in Denver.
WorldCom stock was halted for the day on the NASDAQ Stock Market.
The stock reached US$62 in June 1999 and has lost 94 percent of its value this year, closing Wednesday at US$0.83.
TYPHOON: The storm’s path indicates a high possibility of Krathon making landfall in Pingtung County, depending on when the storm turns north, the CWA said Typhoon Krathon is strengthening and is more likely to make landfall in Taiwan, the Central Weather Administration (CWA) said in a forecast released yesterday afternoon. As of 2pm yesterday, the CWA’s updated sea warning for Krathon showed that the storm was about 430km southeast of Oluanpi (鵝鑾鼻), Taiwan’s southernmost point. It was moving in west-northwest at 9kph, with maximum sustained winds of 119kph and gusts of up to 155kph, CWA data showed. Krathon is expected to move further west before turning north tomorrow, CWA forecaster Wu Wan-hua (伍婉華) said. The CWA’s latest forecast and other countries’ projections of the storm’s path indicate a higher
SLOW-MOVING STORM: The typhoon has started moving north, but at a very slow pace, adding uncertainty to the extent of its impact on the nation Work and classes have been canceled across the nation today because of Typhoon Krathon, with residents in the south advised to brace for winds that could reach force 17 on the Beaufort scale as the Central Weather Administration (CWA) forecast that the storm would make landfall there. Force 17 wind with speeds of 56.1 to 61.2 meters per second, the highest number on the Beaufort scale, rarely occur and could cause serious damage. Krathon could be the second typhoon to land in southwestern Taiwan, following typhoon Elsie in 1996, CWA records showed. As of 8pm yesterday, the typhoon’s center was 180km
TYPHOON DAY: Taitung, Pingtung, Tainan, Chiayi, Hualien and Kaohsiung canceled work and classes today. The storm is to start moving north this afternoon The outer rim of Typhoon Krathon made landfall in Taitung County and the Hengchun Peninsula (恆春半島) at about noon yesterday, the Central Weather Administration (CWA) said, adding that the eye of the storm was expected to hit land tomorrow. The CWA at 2:30pm yesterday issued a land alert for Krathon after issuing a sea alert on Sunday. It also expanded the scope of the sea alert to include waters north of Taiwan Strait, in addition to its south, from the Bashi Channel to the Pratas Islands (Dongsha Islands, 東沙群島). As of 6pm yesterday, the typhoon’s center was 160km south of
STILL DANGEROUS: The typhoon was expected to weaken, but it would still maintain its structure, with high winds and heavy rain, the weather agency said One person had died amid heavy winds and rain brought by Typhoon Krathon, while 70 were injured and two people were unaccounted for, the Central Emergency Operation Center said yesterday, while work and classes have been canceled nationwide today for the second day. The Hualien County Fire Department said that a man in his 70s had fallen to his death at about 11am on Tuesday while trimming a tree at his home in Shoufeng Township (壽豐). Meanwhile, the Yunlin County Fire Department received a report of a person falling into the sea at about 1pm on Tuesday, but had to suspend search-and-rescue
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