The former CEO of WorldCom, Bernie Ebbers, has declined to provide testimony to a US Congressional committee due to concerns that it could implicate him.
Scott Sullivan, the former chief financial officer, did the same while other witnesses attempted to place the blame for WorldCom’s purported wrongdoings on each other.
The committee’s goal is to determine how an accounting fraud worth $3.8 billion (£2.5 billion) could have remained undetected for almost a year.
Following a thorough investigation into the demise of Enron, the committee is attempting to determine whether WorldCom violated any rules and how much the existing legislation needs to be tightened.
Meanwhile, President George W. Bush will present his own, rather laxer, vision of corporate regulation on Tuesday. Democratic efforts to enact a strict law regulating the accounting industry are underway on the Senate floor.
Grasping the Fifth
However, Mr. Ebbers informed the committee that his legal advice had instructed him to decline to respond, as permitted under the Fifth Amendment of the Constitution. Mr. Ebbers left in April, two months before WorldCom acknowledged that their figures for 2001 and 2002 were incorrect.
He continued: “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 during my tenure.”
That and other remarks drew criticism from two Republican congressmen, Max Sandlin of Texas and Richard Baker of Louisiana, who claimed he had forfeited his Fifth Amendment rights by making a statement after declining to respond.
Michael Oxley, a Republican from Ohio who serves as the committee’s chairman, informed Mr. Ebbers that the committee reserved the right to call him back, interrogate him about the topics he had addressed in his opening statement, and possibly even file a contempt of Congress charge against him.
..In addition, Mr. Oxley stated, “Make no mistake, the consequences to this sort of criminal activity… should be severe, and that may mean time in federal prison” should it be established that he or others were accountable for concealing expenditures totaling about $4 billion.
Scott Sullivan, the former chief financial officer of WorldCom, also received a fifth.
Making a declaration
Chairman Bert Roberts, Salomon Smith, and Messrs. Sidgmore, Ebbers, and Sullivan On Monday, Melvin Dick, a former partner at WorldCom auditor Andersen, and Jack Grubman, a telecoms analyst at Barney, will make their statements.
It is doubtful that their testimony will be particularly contentious because the current management of the company has stated that they are prepared to help investigators in any manner that they can.
In pre-released prepared evidence, Mr. Sidgmore suggested that Arthur Andersen, the auditors, were to blame for their inability to identify the accounting errors.
“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,” he stated.
Returning the favor
The accounting issues were described as a “outrage” by WorldCom chairman Bert Roberts in a prepared statement.
“To my mind, the failure of our outside auditors to uncover them is inconceivable,” he stated.
Mel Dick, an ex-Andersen player, however, sent the ball back immediately.
He informed the committee, “Neither I nor any member of my team had any inkling that these transfers had been made.”
“I would be very interested in how and when (WorldCom’s internal auditors) found these entries.”
He said before the committee under intense grilling that it was totally understandable for Andersen to overlook the numbers in the midst of “thousands and thousands” of transactions and that they complied with generally accepted accounting principles (GAAP).
He was repeatedly asked if his organization had any other responsibilities, but he just reiterated that Andersen’s role was to make sure the audit was conducted in compliance with GAAP.
“We did our audit in accordance with all the things we were expected to do,” he stated.
Sue Kelly, a Democrat from New York, was not satisfied with that and informed Mr. Dick, saying, “It looks like you were General Custer and WorldCom was the Indians, and you got slaughtered.”
Vermont independent Bernie Sanders was more vociferous.
“It appears very clearly that Arthur Andersen failed in their audit of WorldCom, you failed in the audit of Enron,” he stated. “It is incomprehensible to me that a major accounting firm can have such a dismal record.”
Purchase, purchase, purchase
He didn’t know WorldCom had put itself in such a difficult situation.
There has been speculation that his decision to downgrade the firm on June 21, before of WorldCom’s, was influenced by insider knowledge. Regarding Mr. Grubman, the largest supporter of WorldCom on Wall Street, he informed the hearing admission that the statement “underperform” was “categorically false” and went from “strong buy.”
Throughout his testimony, he repeatedly acknowledged that he “could not recall” particular and, when pressed, would usually try to defend his company’s “typical” practices.
He acknowledged that his company found it simpler to market investment banking services to a company when there were positive reviews about it.
Furthermore, he admitted attending three board meetings, which is “rare” for an analyst.
“I have always formed my own independent opinions,” he insisted. I’ve always called them as I saw them, right or wrong.”
He could not be held accountable if his forecasts proved to be incorrect due to WorldCom’s misrepresentations.
“Our judgements are only as good as the public statements,” he stated.
Political sway
A number of congressional committees have held hearings in recent months to investigate various corporate governance issues, with a focus on Enron.
However, Congress hasn’t done much to advance the cause, and the impending summer break might impede the ongoing probe.
In addition, Mr. Bush faces pressure to deliver on his promises since he has been accused of being overly cozy with big business.
The Republican Party is keen to demonstrate its independence from business interests following the embarrassing demise of Enron, a significant contributor to the 2000 presidential campaign.
Regulators have also questioned Mr. Bush and his vice president, Dick Cheney, about their personal business transactions.
The specifics of Tuesday’s speech are unknown, but the White House is rumored to have included a series of steps designed to make life more difficult for executives who have a history of failing to face criminal charges.
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