SEC's Pitt Angered at WorldCom, More Accounting Errors on Horizon
The Securities and Exchange Commission (SEC) ordered WorldCom to produce a statement on Monday, July 1, setting out a detailed timeline of the date of discovery and disclosure of $3.8 billion in expenses that were buried on the balance sheets of 2001 and 2002 financial statements. According to SEC Chairman Harvey Pitt, WorldCom failed to provide the information required by the SEC.
"WorldCom's statement is wholly inadequate and incomplete," said Mr. Pitt. "It demonstrates a lack of commitment to full disclosure to investors and less than full cooperation with the SEC."
Meanwhile, WorldCom spokesman Brad Burns said, "We were very surprised by (Mr. Pitt's) comments. Based on the SEC order and conversations with SEC staff, we believe they were clear on what we would be able to provide at this time. Our response was entirely in line and is in fact a summary of what we know at this point."
WorldCom reportedly concealed $3.8 billion of expenses by holding the amounts in reserves against potential losses. WorldCom plans to restate financial reports for 2001 and 2002 to recognize the expenses. The company reports that it is reviewing financial statements for 1999, 2000, and 2001 and investigating reversals of reserve accounts in those years. "In particular, questions have been raised regarding certain material reversals of reserve accounts during 2000 and 1999," the company said in the statement filed with the SEC. "No conclusion has been reached regarding these entries. If, after review, the company believes additional actions are required, it will make an announcement promptly."
WorldCom, the nation's second largest communications company after AT&T, is the result of a 1999 merger between MCI WorldCom Inc. and Sprint Corp. The merger that combined those two companies was the largest merger ever. Many analysts feel the company now sits on the brink of bankruptcy, however WorldCom Chief Executive John Sidgmore expressed confidence this week that the company will be able to solve its financial problems without protection from the bankruptcy court. WorldCom is sitting on $30 billion in debt, and Mr. Sidgmore said the company is working with banks to refinance the debt.