WorldCom: $3.8bn fraud may be tip of the iceberg

Just when you thought it was safe to go back into the accounts ledger...

Just when you thought it was safe to go back into the accounts ledger...

WorldCom has announced that the $3.8bn fraud revealed last week may be just the tip of the iceberg. Having admitted last Tuesday that it had misreported its last two years' worth of accounts, WorldCom has now said that it is also "unsure" about the profits reported for 1999 and 2000. The company made a statement to the Securities and Exchange Commission (SEC) yesterday, in which it said it was reviewing "certain material reversals of reserve accounts" during 1999 and 2000. It also included an account of how the $3.8bn fraud came to light. But the SEC isn't impressed. Harvey Pitt, the organisation's chairman, described the statement as "wholly inadequate", adding that it demonstrated a "lack of commitment to full disclosure and less than full co-operation with the SEC". That will come as a rather embarrassing blow to WorldCom chief executive John Sidgmore, who himself issued a statement yesterday - before Pitt's comments were made - which read: "Today's filing is consistent with our pledge to be forthright and open, and to cooperate fully with both internal and external investigations. We will continue to be proactive in reviewing our operations and reporting our findings. This company is absolutely committed to operating in accordance with the highest ethical standards." The SEC statement shows that WorldCom employee Cynthia Cooper first spotted the discrepancies in the accounts in May, but that Sidgmore was not told of them until 20 June. Scott Sullivan, the organisation's former CFO, was sacked four days later. But Sidgmore - who only became CEO in April and has so far been seen as an innocent by-stander in the scandal - may too find himself having to answer some awkward questions now that the figures from 1999-2000 may need restating. Sidgmore was one of WorldCom's senior executives in the second half of the nineties, having formerly ran UUNet, which was acquired by MFS Communications in 1995 - and which itself was then bought by WorldCom in 1995. Sidgmore ran WorldCom's internet backbone and international operations in the late nineties. He has taken more of a back-seat role since the turn of the century, according to today's FT, but some commentators are asking how such a senior figure in the company, and one of former CEO Bernie Ebbers' closest confidants, could have failed to know what was going on. The SEC statement also revealed that WorldCom has defaulted on $4bn of bank debt. Its shares are due to be delisted from Nasdaq on Friday. They're now worth just six cents, valuing the company at $200m. It was once worth $190bn. Meanwhile, Ebbers has protested his innocence in front of God. Today's Daily Telegraph tells how the man at the centre of the scandal broke his silence over the story during a church service last Sunday. Ebbers - a deeply religious man - told the congregation: "I just want you to know you aren't going to church with a crook. This has been a strange week at best. On Tuesday I received a call telling me what was happening. I don't know what the situation is with all that has been reported. No one will find me to have knowingly committed fraud." Apparently, the congregation then gave Ebbers a standing ovation.