WorldComNews.com

Media Archive
July 8-14
Some Headlines and Commentary Provided By Ben Silverman and DotComScoop.com

Sunday July 14, 2002 @ 4:06 PM EDT
Congressman Billy Tauzin (R - La.) says that WorldCom's accounting fraud began in 2000, according to internal documents obtained from the company. Tauzin chairs the House Energy and Commerce Committee, which is investigating the company. During an appearance on ABC's "This Week", Tauzin said, ""The documents ... reveal a strange pattern of people inside the corporation discovering it, trying to do something about it, and ultimately failing until recently." The documents reveal that at least two employees pointed out accounting problems; one informed ex-CFO Scott Sullivan and ex-Controller David Myers, the other informed WorldCom's outside auditors, Andersen.
Meanwhile, The Telegraph reports that a former employee at WorldCom's U.K. subsidiary is blowing the whistle on the company's accounting fraud. "We have evidence in our possession which suggests that WorldCom officials based in the UK were told to keep quiet about accounting irregularities," Tauzin spokesman Ken Johnson said.
Talk about a conspiracy... USA Today's Kevin Maney puts forth the idea that Microsoft could one-day own all the fiber in America. Just fiber, not the bran. Maney says that super-investor Warren Buffett, Level 3 founder and CEO James Crowe, billionaire Walter Scott and WorldCom CEO John Sidgmore could eventually "conspire" to sell Bill Gates the Internet backbone and WorldCom's key infrastructure assets. This article is getting all sorts of play in the telecom sector among investors, whackos and one-eyed monkey eaters. Before you start crapping in your pants, Rick News says it's all B.S. News was the Chairman of the Board at UUNET when it merged with MFS, which was then sold to WorldCom weeks later. Sigmore was CEO of UUNET at the time. In letter to Dave Farber's Interesting-People list, News debunks some of Maney's historical intepretation of events surrounding UUNET, MFS and the money guys. "I don't understand the part about Microsoft owning 14.7% of UUNET being relevant. I owned more than that and I also don't remember asking Gate's permission to sell the company. Microsoft was not in a position to force or stop a sale. (I think I could have stopped it, but I don't think anyone else could have)," News writes. News also has harsh words for USA Today; "My opinion of USAToday as a "news" source remains as low as ever," he says.

Saturday July 13, 2002 @ 12:25 PM EDT
Who knew? "There is no question, absolutely none, that a number of middle management people at WorldCom had a very good idea that someone was cooking the books," Ken Johnson, spokesperson for the House Energy and Commerce Committee said.
The SEC has known about Bernie Ebbers involvement in the accounting scandal since June 25. I think we've all known since June 25.
However, Ebbers may not have known that WorldCom's book fudging was illegal. "But accountants say Ebbers may present a tough target to prosecute. Some of the accounting moves used by WorldCom are legal in some situations. While experts agree WorldCom's transfers were not acceptable, there are no indications that Ebbers was aware of their impropriety," Robert Schoenberger of the Clarion-Ledger writes.
You know it's bad when the banks come after you. Twenty-five banks have sued WorldCom alleging the company obtained loans fraudulently. The banks attempted to put a freeze on $2.65 billion in WorldCom assets, but a judge denied request and set a July 16 hearing date.
Ashburn, Virginia; home of the Internet and a WorldCom kind of town.
Um, read at your own risk. "Your Con", a take on "Your Song" by Elton John.

Friday July 12, 2002 @ 11:00 AM EDT
Glad to see this story get some ink. Lawyers say that WorldCom company is improperly trying to limit future claims and participation in class-action lawsuits by forcing workers to sign away their legal rights in return for severance pay and paid health benefits, according to the L.A. Times. I had a few conversations about this with former WorldCom employees yesterday. The big problem is that departing employees must sign a waiver which removes their right to sue WorldCom; they get the severance package in return. But this means they can't later sue the company to recover 401(k) losses. A Tuesday hearing is scheduled and a victory for employees would mean that WorldCom would have to stop circulating the agreement and recall any agreements signed by laid off workers.
Dan Ackman makes some good points regarding Rep. Tauzin disclosure that Ebbers knew. It's a murky world of spin and hearsay. "In the WorldCom case, we have the added nonsense of lawyers arguing about who said what to internal investigators," Ackman writes.
Some are questioning John Sidgmore's role and commitment to WorldCom. They suggest that WorldCom's current CEO should not have taken millions in compensation if he was a figurehead, as Sidgmore says he was during the accounting scandal years. "But some corporate governance experts are questioning Mr. Sidgmore's commitment to the task at hand, as well as his past commitment to WorldCom, which he joined in 1996 when it acquired MFS Communications, where Mr. Sidgmore had been a top executive, the New York Times reports. (Free registration required)
British telecom Cable & Wireless says it's seeing a lot of interest from WorldCom customers.

Friday July 12, 2002 @ 2:47 AM EDT
I busted out the reporting stick for today's New York Post and came up with Stoolie at WorldCom? Controller David Myers did not appear at Monday's House Financial Services Committee Hearing because the Department of Justice doesn't want him to. Why? Sources tell me that Myers will probably drop a dime on Scott Sullivan and Bernie Ebbers and blow the case open.
The following stories cover House Energy and Commerce Committee Chairman Billy Tauzin's news that WorldCom ex-CFO Scott Sullivan told WorldCom lawyers, who passed the information onto Tauzin's Committee, that former WorldCom CEO Bernie Ebbers knew of the company's accounting plan: Reuters - Washington Post - Ananova - Associated Press - Dow Jones Newswires - Press Trust of India - CBS MarketWatch.
It's unlikely that contempt charges against Bernie Ebbers would stick. And even if Congress rung him on contempt charges, it's only a misdemeanor.

Thursday July 11, 2002 @ 9:15 PM EDT
Former WorldCom CFO Scott Sullivan dropped a dime on former CEO Bernie Ebbers saying that Ebbers knew the company was cooking its books. House Energy and Commerce Committee Billy Tauzin told CNN that Sullivan admitted it to WorldCom lawyers and that his Committee is going through boxes and boxes of internal documents. This is the first time Ebbers has actually been implicated in the accounting mess.
Associated Press version of Ebbers Knew!
A recap of WorldCom CEO John Sidgmore's online chat. The basics; no more layoffs planned right, not selling UUNET or Digex, company could file for bankruptcy and he knew nothing.

Thursday July 11, 2002 @ 3:46 PM EDT
Jack Grubman; the man, the myth, the legend... the man with no future in the business world. Former Salomon Bros. analyst Jack Grubman served as proxy solicitor for WorldCom in 1997 when the company made its successful attempt to acquire MCI, Matthew Goldstein of TheStreet.com reports. What does this mean? It means Grubman schilled on befalf of WorldCom management and told shareholders to vote in favor of the deal. "I find it very troubling," says Jill Fisch, a professor of corporate law at Fordham University School of Law. "It's an acknowledgment by WorldCom that he has crossed the line in one way or the other. He is not acting as an independent objective analyst and you have to be troubled by the fact that this was buried in the proxy disclosure."
The lights turned on and the curtain fell down,
And when it was over it felt like a dream,
They stood at the stage door and begged for a scream,
The agents had paid for the black limousine
That waited outside in the rain. *
WorldCom CEO John Sidgmore chatted with Washington Post readers this afternoon. Sidgmore answered questions on a variety of topics including Britney Spears, hair loss, Soviet-era tank tactics and a new form of marshal arts called "Ebbersouvlaki."
Some of the better exchanges:
Arlington VA: At yesterday's congressional hearing the Arthur Anderson auditor said that his company was forced to rely on numbers that your company provided. How then can you blame the auditors for dropping the ball?
John Sidgmore: Mr. Melvin Dick is that you???
Keith Epstein: It seems, from what you and others have said, that the multibillion dollar misstatement came as much of a surprise internally as to the public and to investors. Perhaps you can explain to outsiders how it is possible that such a problem could arise without many significant players, including members of the board, having sufficient awareness of the brewing storm?
John Sidgmore: The company attempts to protect itself in a number of ways. First the Board of Directors typcially reviews highlights of the financial information quarterly in order to attempt to detect if any major changes have occured in the health of the business. Secondly, the Board has an Audit committe to specifically audit the financial statements. Finally, the Board has outside auditors who review all of the details our our accounting operations and accounting statements each quarter. We would have EXPECTED that this problem would have come up from the detailed review of the financial statements -- by the auditor.
* - lyrics from the song Broken Arrow by Buffalo Springfield

Thursday July 11, 2002 @ 11:06 AM EDT
Don't forget; WorldCom CEO John Sidgmore will take part in a live, online chat at 1:00 PM EDT today. The chat is hosted by The Washington Post.
Despite saying a number of times that it would, WorldCom said today that it would not pay shareholders of its MCI tracking stock a scheduled dividend.
Accounting experts say that Scott Sullivan's justification for his accounting procedures may hold up in court if he's charged with criminal fraud. "The rule Sullivan relied upon to allow calling some line costs a capital expense was Financial Accountant Standard Board Rule 91. The rule allows companies to consider expenses from some loans and leases to be capital expenses," The Clarion-Ledger reports.
An editorial cartoon lampooning Monday's House Financial Services Committee hearing.

Thursday July 11, 2002 @ 2:08 AM EDT
Mental note... notice how the stuff has to hit the fan before the government takes action? It took terrorism for the term "homeland security" to even be brought up, it took scandals for corporate reform to be attempted in a sorry fashion and it will take a miracle for lawmakers to actually act in the best interest of the people. I needed to stay out longer and drink more tonight.
An actual story broken here... WorldCom could face face service outages in Europe because it owes partners about $1 billion.
Oy vey. WorldCom is scheduled to make an $80 million interest payment on bonds next Monday. Will they actually pay it? Your guess is as good as mine. Story also recaps some earlier WorldCom news.
This certainly makes my job easier; the Justice Department investigation into WorldCom will be led from New York. "Another point in favor of the New York office may have been its vast experience probing white-collar crime as a result of its proximity to Wall Street firms. It has one of the nation's largest financial crime units," USA Today reports.
Down low in this article, Phil Donahue wants to bring his new show to Clinton, MS to talk to laid off WorldCom employees.
One dolla! One dolla! A corporate jet for one dolla! WorldCom leased a corporate jet to a company director who headed the committee that sets salaries and benefit levels for senior executives for $1.
MCI's headquarters in Pentagon City were hit hard by WorldCom's recent layoffs. "Ben Silverman, publisher of DotcomScoop.com, a business news Web site that has a special section devoted to tracking news about WorldCom, said he has heard from hundreds of WorldCom employees who are anxious about their futures," The Washington Post reports. Hey, wait a minute, that's me.

Wednesday July 10, 2002 @ 8:50 PM EDT
Time to relax and listen to some soothing music; "The Day WorldCom Died", to the tune of Don McLean's "American Pie." You can read the lyrics and download the MP3. I haven't downloaded the MP3 because I'm lazy. A sampling: "The Ebbers scandal made me shiver/With every margin call delivered/Bad news on the doorstep/The stock price took a wrong step."
Marvel Comics once had a title called "What If?" The comic books covered topics like, "What If Wolverine Killed The Hulk?" and "What If Elektra Lived?" It was a geek's paradise. Historian Susan Dunn wonders, what if Teddy Roosevelt took on WorldCom? What would this president, the greatest Republican president of the 20th century, have thought of the scandals rocking Wall Street today? Collusion between Enron and Arthur Andersen would not have surprised him. On the contrary, a major part of his energy was reserved for flaying the highly paid hired guns of the business elite, the lawyers, accountants, and corrupt politicians who fought reform, Dunn writes in an article for The Christian Science Monitor. I just like the fact she calls Teddy "the greatest Republican president of the 20th century."

Wednesday July 10, 2002 @ 7:31 PM EDT
Jesus... The U.S. Attorney in Mississippi handling the WorldCom investigation has been recused from the case because he owned WorldCom stock. As a WorldCom employee told me last night; "Everyone in Mississippi is in WorldCom's pocket."
More political fun. Congressmen from Kansas won't give back WorldCom donations. "Tiahrt, R-Goddard, said he assumes that contributions come from companies interested in good government, not in buying influence. Because of that, previous donations from Enron and WorldCom aren't a problem, he said." This dipshit must have corn in his head.
The Federal Communications Commission, another backwater government agency that does more harm than good (idiots are letting the media companies consolidate), will ensure that WorldCom customers don't get screwed if the company files for bankruptcy. Anyway.

Wednesday July 10, 2002 @ 3:27 PM EDT
Here's your chance to talk with WorldCom CEO John Sidgmore. The Washington Post will hold a live online chat with Sidgmore on Thursday at 1:00 PM EDT. Sidgmore was originally scheduled to hold a chat on June 21, four days before the news of WorldCom's accounting scandal hit. He cancelled at the last moment, something I noted in my June 24 newsletter. Damn, I'm so ahead of the curve it's scary. You can submit questions ahead of time if you like. If you submit a question, email me and let me know what you asked.

Wednesday July 10, 2002 @ 1:30 PM EDT
It ain't over 'til it's over and it won't be over until then. David Simons of Forbes says WorldCom's accounting reminds him of Yogi Berra. Berra was a Hall of Fame catcher for The New York Yankees, famous for his oddball quotes and Dubya-esque use of grammar. "Marketing costs usually must be charged against income immediately. Sullivan's scam was reducing the current expense of line connections by reclassifying them as capital investments, which can be charged off over many years. So Sullivan's memo next throws a change-up curveball. It cites accounting rules that, Sullivan claims, say that "costs associated with obtaining a customer may be deferred and amortized over the revenue stream associated with that contract," Simons writes. The memo Simons refers to is one that WorldCom's former CFO Scott Sullivan prepared to explain his accounting procedures. It can be found here. (PDF file)
Bernie, Scott & John, sitting in a tree, P-I-S-S-I-N-G. WorldCom's big three are now at odds and no longer friends. Boo-hoo. "When asked by a member of the House Financial Services Committee if he had talked to Ebbers about voluntarily dropping his severance package to save money for the company or to fund employee severance packages, Sidgmore said he and Ebbers no longer speak," the Clarion-Ledger reports.
CNET reports that The Federal Aviation Administration is taking into consideration WorldCom's situation as it prepares to award a 20-year, $3.5 billion contract. WorldCom currently holds the contract, which is up for bid. A decision could be made this week.
Bernie Ebbers' lawyer has defended a roster of high-profile criminals, er, clients. Call his office and ask him if Bernie can come out and play.
Mississippi residents are beginning to grumble about Ebbers silence. ""I don't understand why. If (Ebbers) is not guilty of anything, he should testify. Evidently, he's hiding something," one said. In related news, Mississippi has agreed to move to Canada.
Qwest Communications is the subject of an investigation by the U.S. Attorney's Office. The Wall St. Journal broke the news last week, but it was finally confirmed today. Qwest is already the subject of an SEC probe and there have been questions related to swaps between WorldCom and Qwest.

Wednesday July 10, 2002 @ 1:40 AM EDT
They say baseball is a reflection of America. If that's the case, I guess tonight's Major League Baseball All-Star Game was like looking into a national mirror. First we had a poorly conceived opening ceremony where we trotted out aging stars to wave to the crowd (social security). Next we had a thirty-five year old woman souped-up to look like a teenager come out to sing the National Anthem (call it a false sense of patriotism). The chick was dressed like a hooker and not only sang terribly, but got the words wrong (Dubya). Then the game started; rosters filled with forty American-born players and twenty-foreign born players (the melting pot). The game included amazing defensive plays (the American dream) and a few displays of power (also the American dream). And then it all went to hell. The benches were unloaded and the pitchers were used by the 11th inning (mismanagement of resources). The powers that be got (politicians) together and made an ill-timed decision (pick one). This decision was then announced to the masses who replied with anger (we'll just say it's The Pledge Of Allegiance ruling). Finally, the Commissioner (CEO) skipped out on an interview to explain what happened (took the Fifth). The game ended in a tie; no winners and no losers; except the fans (shareholders). And no MVP Award (ROI) was handed out. It was a night that made me proud to be a baseball fan and even prouder to be an American.
The good news: WorldCom is in talks to secure a $3 billion line of credit. The bad news: $2.65 billion of that would go to pay back unsecured loans the company received in May.
Despite Sidgmore's optimistic comments about attracting more loans, serious doubts remain about how much cash WorldCom will actually need to get by. Sounds like Chapter 11 is inevitable. Hello debt for equity swap, goodbye shareholder (sic) value.
Did Salomon Smith Barney give IPO shares to WorldCom executives? That's the question Pennsylvania Democrat Paul E. Kanjorski and Connecticut Republican Christopher Shays want answered and they've sent a letter to Salomon asking for an answer. The IPO of defunct DSL provider Rhythms NetConnections is in question, according to Dow Jones Newswires.
In his last, desperate days as WorldCom's CFO, Scott Sullivan was trying to raise cash for the company. He obviously failed. (New York Times - requires free registration)
WorldCom CEO John Sidgmore told The Washington Post that the company may have to file for Chapter 11 bankruptcy soon. "In order to protect our cash, we may have to go into Chapter 11 for at least a little while," Sidgmore said. The story also talks about Benie Ebbers' problems with invoking his Fifth Ammendment rights. "After a hearing Monday before the House Financial Services Committee, Rep. Max Sandlin (D-Tex.) said he will pursue contempt-of-Congress charges against former WorldCom chief executive Bernard J. Ebbers for his failure to respond to questions on the company's accounting problems," the paper reports.
More on the possibility of ringing Ebbers up on a contempt charge.
The Washington Post also reports that WorldCom employees have collectively lost $1.1 billion on the company's stock in the past three years. "Former WorldCom employee Lisa Brown, 35, says she heeded the encouragement of former chief executive Bernard J. Ebbers and invested all of her retirement contributions in company stock. She said the value of her 401(k) account fell from $45,000 to $210."
Business Week's Lorraine Woellert says Congressional hearings are focused on one thing and one thing only: voters.
CSPAN has archived all nine hours of Monday's House Financial Services Committee WorldCom Hearings. I dare anyone to watch all nine hours.
Leno and Letterman crack wise on corporate scandals.
Tuesday July 9, 2002 @ 6:08 PM EDT
Jimmy Stewart would have turned down this role; "Mr. Bush Goes To New York And Fails Miserably". On one of his few visits to The Big Apple since being elected President, Bush rallied workers at the site of the World Trade Center. His latest visit to the city left anyone with a buck in the stock market, much less a brain in their head, wondering if the President really means business, or if business really runs the Presidency. I have no evidence that leads me to believe President Bush will change anything. This is literally business as usual coming from Washington. The Capital is a town full of punks and the Chief Executive isn't any different. A sorry performance. Our government, our elected officials and our institutions are simply fucked up.
"This is a matter of the rules being changed," New York State Attorney General Eliot Spitzer told Dow Jones Newswires. The man who took on Merrill Lynch said he was "enormously dissapointed" by the President's speech. Earlier he told CBS Radio that Bush's plan was "inadequate."
Bush picked Deputy Attorney General Larry Thompson to head the new Justice Department's Corporate Fraud Task Force. From the sound of it, Thompson is another loud talking, do nothing type.
Stocks fell after the President's piss-poor excuse for plan was made public.
Special interest groups expressed mixed reaction to Bush's proposals. Someone explain to me why religious leaders are invited to EVERY event.
Democrats, Republicans and business leaders react to Bush's speech. "[The moves are] certainly a small step in the right direction, but what I've been saying for years is, for the most part, there is no real democracy in corporate America. Until you have a democracy, you're going to have corruption," corporate raider Carl Ichan told AP. Now that's scary coming from that dude.

Tuesday July 9, 2002 @ 3:17 PM EDT
They had burgers and beer. They went yachting. But the question on everyone's mind is this; was there sex in the Champagne Room? The Associated Press explores the chummy relationship between Bernie Ebbers and Jack Grubman. "Ebbers waited patiently for Grubman, chatting warmly with one of the assistants. When Grubman got off the phone, they whispered in each others' ears, all smiles and friendly back-pats." Hmm, back-pats?
The days of pumping steroids into telecoms is over. A smaller, stronger telecom industry is inevitable. And with that, a civilization of super-Apes will emerge and one day rule the planet. Earth will then be renamed The Planet Ruled By Super-Apes With A Small, Strong Telecom Industry. Begin making chimp sounds... now.
More on the Portland Beavers' "Arthur Andersen Night". Mmmm... Portland.

Tuesday July 9, 2002 @ 1:01 PM EDT
WorldCom will decide on a reorganization plan within the next three weeks. "We have no written formal proposals, but we expect to get term sheets from at least two different sources shortly. I would say within three weeks we'll know," CEO John Sidgmore told Reuters.
Donald Luskin, who blamed the Government for WorldCom's problems before the accounting scandal broke, now says the media screwed up when it originally reported on WorldCom's accounting scandal. Luskin's article is correct, but Robert Lee beat him to punch in an article published on Dotcom Scoop one day before Luskin's was originally published.

Tuesday July 9, 2002 @ 11:28 AM EDT
President George W. Bush is currently giving a speech in New York on corporate reforms. The White House has published an overview of the speech. Among the highlights:
- The President will sign an Executive Order creating a Corporate Fraud Task Force to provide direction for investigations and prosecutions of criminal activity. The Task Force will provide oversight and enable improved inter-agency coordination of civil and criminal investigations.
- The President proposes doubling the maximum prison term for mail fraud and wire fraud to ten years (mail fraud and wire fraud statutes are often used in cases involving corporate wrongdoing).
- The President calls on the U.S. Sentencing Commission to enhance prison time for criminal fraud when committed by corporate officers and directors.
- The President proposes strengthening laws that criminalize document shredding and other forms of obstruction of justice.
- The President proposes new provisions to strengthen the ability of the Securities and Exchange Commission (SEC) to freeze improper payments to corporate executives while a company is under investigation.
- The President calls on public companies? compensation committees to prevent corporate officers from receiving loans from their companies.
Want to know how Wall St. really works? The trading floors are like high school lockerrooms; gossip everywhere without a care. Case in point, a 10:11 AM EDT entry this morning on Briefing.com's InPlay wire: 10:11 ET Explosion rumors sweeping through market : Widespread rumors on trading floors of explosions at Grand Central Station in NY and the Kennedy Center in DC; neither has been confirmed by any news source and we have doubts about these given how long they have been circulating without any confirmation.

Tuesday July 9, 2002 @ 10:03 AM EDT
If your name is Arthur Andersen and you are in Portland, OR on July 18; get to the ballpark early and you can win a party for yourself and 80 friends. The Portland Beavers, a minor league affiliate of the San Diego Padres, are holding Arthur Andersen Appreciation Night. People named "Arthur" or "Andersen" get in free and if your name is actually Arthur Andersen, you could win a skybox party. Shredding machines will be set-up around the ballpark; no joke.

Tuesday July 9, 2002 @ 1:01 AM EDT
Yeah, I spent yesterday afternoon watching the WorldCom hearings and so did a lot of WorldCom employees. Bad bosses make good TV, don't you know? "Every time Ebbers was shown, we threw things at the screen," said a WorldCom sales associate who asked not to be identified, but who spent the day eating pizza with co-workers glued to the hearings," I report in today's New York Post. A blockbuster of a story (that's sarcasm).
My Post cohorts Jessica Sommar and Vince Morris dig deeper into Salomon Smith Barney analyst Jack Grubman's testimony. "It seems like he was stepping way beyond his role as an analyst and actually being a participant in some of the company's decisions. He sounds like an investment banker," Robert Heim, a former SEC assistant regional director, told The Post.
CNN's coverage of Monday's hearings. And USA Today's coverage. Interesting to note that former WorldCom Controller David Myers is M.I.A. (Note: For more coverage of Monday's hearing, see earlier entries)
The dominoes are in place and the question remains whether they will fall. "Each month, about 10,000 teachers receive free training in math, science and the arts from the MarcoPolo project, which is sponsored by WorldCom's charity arm. Now, program administrators and partners - including the National Geographic Society, American Association for the Advancement of Science and The Kennedy Center - are trying to make the project independent of the struggling company. Last week, they pulled WorldCom's logos from the MarcoPolo Web site. They're applying to make it a "public charity," says Caleb Schutz, president of WorldCom Foundation. "There's a lot to lose if the company ... pulled the plug." For now, WorldCom still funds MarcoPolo," USA Today reports.
OT: Mr. Blogger himself Evan Williams linked here and writes, BTW, is a blog still a blog if its newest content starts several screenfulls down from the top of the page? Okay, perhaps I'm being picky, but that stuff is what margins are for, right? Nooo!!! Ok, I threw this microsite together in ten minutes and later added the disclaimer and such up top I put them up there because there was some confusion from readers who aren't familar with the "blog" concept (yes, not everyone knows about weblogging). It ain't pretty, but it's functional and informative, and that's what counts.

Tuesday July 9, 2002 @ 1:01 AM EDT
More recaps of Monday's hearing... "I think the theme has become clear," Rep. Barney Frank (D-Mass.) said outside the hearing room. "All the people who are supposed to be checking each other are in fact collaborating with each other," The Washington Post reports. ""You were General Custer and WorldCom were the Indians, and you got slaughtered," lectured Rep. Sue W. Kelly (R-N.Y.), regarding Andersen. "In the hearing's most poignant moment, Kelly delivered a speech directed at Ebbers, in which she told him that although he deserved to be well paid for founding his company, his severance package of $1.5 million a year for life, with health insurance and use of the corporate jet, could not be adequately explained to single mothers and other hard-working Americans," the paper reported. Actually, I felt this was the hearing's most contrived and pandering moment. It was almost like Kelly was screaming, "Re-elect me, I'm a woman's best friend! I'm one of you!"
Sprint is making a move, trying to to steal WorldCom's 10-year, $450 million Pentagon contract.
You can read the full text of Monday's prepared testimony here, courtesy of the House Financial Services Committee. Check CSPAN later today for archived video of Monday's hearings.
Residents of Clinton, MS; WorldCom's corporate home, react to Monday's testimony.
It may be in our best interest to never allow President Bush to answer questions publicly again. Q: Mr. President, one way to establish or restore investor confidence being quoted right now as making public the tax returns of corporations. Would you favor that policy? BUSH: Making public -- I need to look at that. I'll take a look at that.
One-hundred percent off-topic, but this is a nice story about how 7-11 is celebrating its 75th anniversary by celebrating the diversity of its employees. It's good PR on their part, but a nice story as well.

Tuesday July 9, 2002 @ 12:01 AM EDT
Programming note: Due to a technical problem the website was not available for several hours on Monday evening. I apologize for any inconvienence.
"A class action lawsuit based on interviews with 100 staff alleging a startling array of accounting tricks was filed in a Mississippi court last June, only to be thrown out by a judge who simply did not believe that fraud on the scale claimed was possible," reports The Telegraph. And therein lies one of the big problems with Corporate America; the courts. I can't tell you how often bankruptcy proceedings and lawsuits against corporations are screwed because judges simple don't understand some of the facts involved with a case. We can reform Corporate American all we want, but unless we also reform the bankruptcy process and securities lawsuits, it simply won't matter. Wake up Washington, the problem goes deeper than accounting and Wall St.
Want to read something really funny? How about former WorldCom CEO Bernie Ebbers' statement before the House Financial Services Committee on Monday. "When all of the activities at WorldCom are fully aired and when I get the opportunity -- and I'm very much looking forward to it -- to explain my actions in a setting that will not compromise my ability to defend myself in the legal proceedings arising out of the recent events, I believe that no one will conclude that I engaged in any criminal or fraudulent conduct during my tenure at WorldCom," Ebbers had the nerve say. My response: Fucking liar.
Hey, sorry, we lied again! WorldCom refiled an SEC statement outlining how the company uncovered its accounting problem. The revised statement, along with other lies, can be found here. The SEC has posted an easier to read, text version of the statement. Yeah, I'm pissed right now.
Despite claims by Andersen's Melvin Dick that his firm was in the dark, WorldCom's revised SEC statement indicates that Andersen auditors noted there were "no significant or unusual transactions" during 2001. These guys had their heads up their asses.
David Simons of Forbes poured over WorldCom's financials and said the company created a convincing lie. I came away with a sense of awe. Far from being ham-handed, the scam was incredibly elegant. All of the numbers behave as would be expected. In fact, the closer the look, the more convincing it becomes," Simons writes.
So Bernie takes the Fifth and gets berated all day; what does this mean? If nothing else, he's losing some hometown support.

Monday July 8, 2002 @ 5:50 PM EDT
Chairman Michael Oxley unsuccessfully sought to excuse Mr. Ebbers from the hearing and reserve the right to recall him at a later date. Since " questions are not going to get answered," Rep. Oxley said there was no point to keeping Mr. Ebbers in the hot seat. "It may make for good television but it doesn't make for good legislating," the chairman added," Dow Jones Newswires reports. Good recap of today's testiphony.

Monday July 8, 2002 @ 4:32 PM EDT
"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 at WorldCom," former WorldCom CEO Bernie Ebbers told the House Financial Services Committee. Ebbers then invoked his Fifth Ammendment rights, but committee members question whether after making such a statement, Ebbers could still legally invoke his constitutional right to remain silent.

Monday July 8, 2002 @ 3:08 PM EDT
Ebbers MAY be in some trouble. The Committee is hammering a point that Ebbers may be in contempt in court. Basically what they're saying is that Ebbers' made a statement that effectively absolved him from being able to invoke his Fifth Ammendment rights regarding at least some issues. The Chair wants to take up the issue later and go through proper legal dilligence. Still, they could very well find Ebbers in contempt of court later on and force him to testify. Once he swore an oath, he should have simply taken the Fifth; instead he apparently made some sort of "opening statement" that is leaving him open to a contempt charge.
Congress takes aim at WorldCom

Monday July 8, 2002 @ 3:43 PM EDT
"During questioning, Grubman said he and Salomon staff attended three WorldCom board meetings over a 12-year period to advise the company on proposed acquisitions. That acknowledgement elicited skeptical remarks among lawmakers, who noted how rare it is for outsiders to sit in on corporate board meetings," Jeffry Bartash from MarketWatch reports.
Could a Federal Prison be Bernie Ebbers' and Scott Sullivan's forwarding address? "And make no mistake, the consequences to this sort of criminal activity, should it be proved, should be severe, and that may mean time in federal prison," Rep. Michael Oxley, chairman of the House Financial Services Committee said.
The latest hearing-related stories... Ex-WorldCom execs plead Fifth

Monday July 8, 2002 @ 2:56 PM EDT
I'm sitting here laughing my ass off... Mass. Congressman Barney Frank is ripping Grubman a new one. He asked what I asked; why is an analyst at a Board meeting? Grubman said he was there to provide "the market color." Frank responded, "who are you, Phil Rizzutto?" (reference to former Yankees colorman). Frank also told Andersen's Dick that he was doing an excellent job of evading questions. It's funny stuff, some of it even productive, especially the questioning of Grubman. Frank's time is unfortunately done.

Monday July 8, 2002 @ 2:36 PM EDT
Some running commentary on the hearings... First of all, some of these Congressmen are woefully ill-informed. They're asking some awful questions that don't even make for good soundbytes... Grubman looks like he's about to shit in his pants... Grubman said he attended three WorldCom Board meetings in twelve years and that he had material information that was not publicly made for "two or three days"... Ok, here's a question; what is an analyst doing at a Board meeting? Grubman said it was because his firm, Salomon, was doing business with WorldCom and working deals with them... Ok, fine, that's the investment banking side, the analyst shouldn't be in there... This is the point that New York Attorney General Eliot Spitzer is hammering home... Ebbers, btw, looks like he had an enema this morning.

Monday July 8, 2002 @ 2:16 PM EDT
For those of who want to watch the WorldCom testimony live, you can do so via The Washington Post's website (link opens browser with Real Video in-browser). Interestingly enough, a Congressman from Texas just asked that Bernie Ebbers be held in contempt because before invoking his Fifth Ammendment rights Ebbers made a "self-serving statement" that, in the words of this Congressman, waived his Fifth Ammendment rights since he was already under oath. It was a "point or procedural order" and the Chair said they'd get back to it. Don't know if it means anything.

Monday July 8, 2002 @ 2:02 PM EDT
Yawn, an unexciting day of calculated testimony and media gawking on Capital Hill is occuring as we speak. As expected; Ebbers, and Sullivan are taking The Fifth. No mention of David Myers in this initial Associated Press report. Sigdmore, Chairman Bert Parks and Salomon's Grubman all prepared their "testimony." "WorldCom uncovered this problem internally. The kind of initiative demonstrated by our internal audit group is to be applauded and will continue to be encouraged," Sidgmore said. Parks but the blame on Andersen, WorldCom's auditor. "To my mind, the failure of our outside auditors to uncover them is inconceivable," the Chairman said. Grubman said he regretted rating the stock highly for so long, but that he knew nothing of the company's accounting problems. Andersen's Melvin Dick denied anyone at his firm was aware of the company's fuzzy math. So here is where we stand... Current WorldCom management is pointing to Ebbers, Sullivan and possibly Myers as rogue executives who bamboozled everyone and they paint a picture of Andersen failing in its duties. Andersen denies knowing anything and is playing the victim. Grubman is basically admitting he's a dumbass.
Reuters actually got its hands on Sidgmore's testimony. "While our reputation has suffered a tremendous blow, ours is a great company that the new management team will do everything in our power to save," WorldCom's CEO wrote. He went onto blather about WorldCom's importance to national security, another angle the company is playing up despite the fact that WorldCom's "national security" assets could easily be sold off. "Although we have significant cash on hand, we are in close communications with our lenders to secure replacement lines of credit," Sidgmore continued. Reuters also was able to get Grubman's testimony, which reads like basic Wall St. "me-didn't-know-anything-anyone-else-didn't-know-apologist-fare."
CBS MarketWatch gets a little more in-depth with Grubman's statements. "Analysts are not auditors. Like rating agencies and investors, we rely on the assurances of those whose job it is to prepare and certify a company's financial statements. If the public information on which we rely is wrong, our ultimate judgments about a company will be flawed," the former wunkerkind said. Andersen's Dick (no pun intended) gets some more play as well. ""The fundamental premise of financial reporting is that the financial statements of a company - in this case WorldCom - are the responsibility of the company's management, not its outside auditors. WorldCom management is responsible for managing its business" and to "keep track of capital projects and expenses."
Now we wait to hear what potshots the politicians take.

Monday July 8, 2002 @ 11:25 AM EDT
WARNING: The following link goes to a Microsoft PowerPoint presentation. You need to have PowerPoint or the PowerPoint viewer installed to view the file correctly. The file will download to your Temporary Internet Files folder if you are using Windows. It takes less than a minute on a normal dial-up connection. With that said, this presentation is being used by WorldCom's sales staff to help explain the current situation to customers. The presentation basically rehashes public comments made by the company in a bullet-point format aimed at breaking down the basic arguments for the company going forward.

Monday July 8, 2002 @ 10:59 AM EDT
It is "the single most important sales and marketing initiative our company will pursue this year," WorldCom Senior Vice President Global Accounts Jonathan Crane told his staff in an email this morning. The company will release The WorldCom ConnectionSM on July 10; an integrated voice and data platform aimed at enterprise, according to an email obtained exclusively by Dotcom Scoop. "[It] may be too little, too late," one WorldCom employee mused.
From: Office of Jonathan Crane
Sent: Monday, July 08, 2002 10:16 AM
To: 'Office Of Jonathan Crane'
Subject: CONNECTION
It is our culture as entrepreneurs, and our commitment to delivering innovative and quality services to our customers, that will affirm WorldCom's position in the marketplace.
As we continue with our strategic plan, WorldCom will release to market - The WorldCom ConnectionSM on July 10. The convergence of voice and data is no longer a distant dream - but the platform for the future of all communications - and only offered by WorldCom.
As communicated last week, please plan to join me as we launch our flagship product via Net conferences throughout the day on Wednesday, July 10.
The WorldCom Connection is one that no other competitor has or will have for some time. It represents a first to market opportunity for us to immediately deliver value, create revenue growth and differentiate WorldCom.
The WorldCom Connection is an integrated offering targeted for enterprise and small business locations and leverages WorldCom's DSL footprint and premier data and IP networks to deliver a new service proposition by consolidating local service, long distance across customer frame relay, ATM, Internet, and VPN networks. This new product gives us an aggressive chance to box out the competition, lock up the customer’s available revenue, and deliver our vision of complete service to the marketplace - and, all at cost savings to the customer.
We have a tremendous opportunity ahead of us and I ask each of you to help in make this successful through your focus, determination, and commitment to our customers. Please take this as a personal challenge - we each have a very real part in ensuring that this is the most successful product in our history.
This is the single most important sales and marketing initiative our company will pursue this year and I look forward to seeing the tremendous contribution I know you will deliver.
Regards,
Jonathan

Monday July 8, 2002 @ 10:21 AM EDT
Fired WorldCom Chief Financial Officer Scott Sullivan tried to justify his accounting procedures to the company's Board of Directors just days before he was canned, according to report from CNNfn. Sullivan argued that the $3.8 billion was spent to help customers better connect to the company's network. "These commitments were vital to network expansion and future revenue growth for the company. At the time of the cost deferral, management had determined that future economic benefit would be derived from these contractual commitments as the revenues from these service offerings reached projected levels. At that time, management fully believed that the projected revenue increases would more than offset the future lease commitments and deferred costs under the agreement," Sullivan reportedly wrote in a report submitted to the Board prior to his ouster.

Monday July 8, 2002 @ 9:13 AM EDT
Ohio Congressman Michael Oxley, chairman of the U.S. House Financial Services Committee, said he expects former WorldCom executives to invoke their Fifth Ammendment rights later today. Oxley also said that there could be more "accounting irregularities" at WorldCom. "I suspect that it could very well be another billion dollars." Oxley was making an appearance on NBC's "The Today Show" and was stumped when asked, "Where in the world is Matt Lauer?"
The Clarion-Ledger also appears to expect former WorldCom CEO Bernie Ebbers to take The Fifth. I dunno, this guy went into a House of God a week ago and before The Lord and assembled media said he knew nothing. Why take The Fifth?
Arizona Senator John McCain spent years as a prisoner of war, so he can come off as a little daffy sometimes. But he's got his head on straight with this one. "Congress and the president must move quickly to frame legislation and reform corporate governance and government oversight. And I would add one more suggestion: they should ask for the resignation of Harvey Pitt, chairman of the Securities and Exchange Commission. While Mr. Pitt may be a fine man, he has appeared slow and tepid in addressing accounting abuses, and concerns remain that he has not distanced himself enough from former clients," McCain writes in an op-ed piece for The New York Times (free registration required).
It's a strange, strange world. Somehow, somewhere, someone wants to make a connection between Monica Lewinsky and WorldCom. "I just - I think that is a ridiculous argument to try to link the two. Certainly malfeasance is malfeasance and there is a moral element to this, but I just think dragging in, you know, Bill Clinton and saying well, he got away with it. Therefore, this - you know we should be looking the other way and this, you know, corporate malfeasants, which are - yes I see the connection, but I don't think that that's a reason that we should be letting these guys off the hook," Newsweek's Martha Brant said two days ago on CNN's "Reliable Sources". That gem is far down in the transcript. The first portion of the show is McCain being interviewed about campaign finance reform and corporate reform. (Thanks to Media News for the link)
H.R. Puffenstuff, got to make the morning rough, what the hell was that thing smoking? H.R. 4083 (PDF) is the "Corporate Responsibility Act of 2002". Some light reading for a Monday morning. H.R. 3818 (PDF) is the "Comprehensive Investor Protection Act of 2002".

Monday July 8, 2002 @ 2:25 AM EDT
Before there was WorldCom, this website actually existed. For those of you who aren't regular readers, check out today's edition of Dotcom Scoop's Rumor Mongering. It has the latest dirt on Sprint PCS, AT&T Wireless/Cingular, Engage, Adelphia, StarMedia, Burly Bear, CNET/Silicon.com, Real Networks, Thomson Financial, Lucent, Qrio, Salon, Qwest, Frank Catalano, Oracle, The Business Plan Archive and a look at the week ahead. You can subscribe, FREE of charge, and have it delivered via email by clicking here.
My column in today's New York Post bears the headline, "Telecoms Vie For WorldCom Turf". It's not so much about WorldCom, but more how the company's competitors are going about their business and looking for deals. Sprint, Covad and BellSouth are among those covered.
If nothing else, the WorldCom scandal will lead to some sort of reform, but will it be enough with Democrats and Republicans fighting for control of Capitol Hill this year? "Not waiting to hear what Bush might have to say, House Democrats have adopted a get-tough-on-business strategy for the campaign trail. Democrats plan to bash Republicans for fostering a lax environment that they argue has led to corporate misdeeds. And many Democrats this summer and fall will stump for stricter business regulation," Alexander Bolton of The Hill writes in his story "Corporate woes spark problems for Republicans". The sad thing is that this is becoming just another campaign issue. Want to see me get really pissed? Put me before a Congressional committee on corporate reform. You think the executives are just to blame? What about the lawmakers who cozy up to big money and turned a blind-eye to everything just to get reelected. Btw, I'm registered as an independent.
Bye, Bye MCI? But don't hang up on MCI... yet.

Monday July 8, 2002 @ 12:28 AM EDT
The shape of things to come... Leaks in Washington are common and the latest seems to point to what is going to go down later today when WorldCom executives and telecom analyst Jack Grubman testify before a Congressional committee. Reuters reported Sunday tonight that former WorldCom CEO Bernard Ebbers proposed cutting the company's audit committee budget in half earlier this year. ""This showed a lack of emphasis of internal auditing that, in retrospect, was unfortunate to say the least," a Congressional source told Reuters' Jeremy Pelofsky. The story also sheds some light on what Grubman and his Salomon Smith Barney chums were doing in the days before WorldCom's announcement. "On [Monday June 24; ed. note: one day before WorldCom's announcement] another Salomon analyst in the firm's bond department e-mailed then CFO-Sullivan seeking information about a rumor that WorldCom had a $3 billion liability, sources said," the story says.
More on that Salomon analysts' email to Sullivan.
The fallout of America's corporate scandals is worldwide because we're trying to convince foreigners to buy into our economic system. "There are some Japanese that are taking delight in this, saying that the U.S. really doesn't have a very good system despite the U.S. trying to proselytize and tell others they should adopt the U.S. system," Glen Fukushima, a former U.S. trade official and president of Cadence Design Systems Japan, a software company, told the Los Angeles Times (via The International Herald Tribune). That's an odd comment coming from someone in the Japanese business world; which is constantly racked by corporate and government scandals. I asked my brother, a MBA student at a business school in Tokyo, what the reaction to the WorldCom news was among his professors and peers. He said no one was paying attention to it because the Japanese have their own scandals, they just don't usually affect us. So I don't know what this dude is talking about.
Business Week's Richard S. Dunham has some advice for President Bush when he makes his Tuesday speech on corporate reforms. "To help prosecute corporate criminals, it's time to increase the enforcement staff at the Securities & Exchange Commission. And it's time to send reinforcements to the Justice Dept. To start with, Congress should immediately approve the emergency supplemental spending bill that includes $20 million to allow the SEC to hire 100 new lawyers and accountants over the next two years," Dunham writes in a speech he's prepared for the President. A speech that no President would have the balls to give (that's my way of applying pressure on the wuss from Texas).
Programs, get your programs! Can't know your players with a program! A preview of today's WorldCom hearings. USA Today says that former WorldCom executives Bernie Ebbers, Scott Sullivan and David Myers are expected to invoke their Fifth Ammendment rights. If they do, expect them to get berated by the panel.
Do you have a big "L" tatooed on your forehead? You might if you're a WorldCom loser.
More on that debt for equity swap bondholders are discussing with WorldCom. "The bondholder proposal comes at a delicate time. Today, no other claims take priority over the bond holders since the banks lent money to WorldCom without any collateral. But the banks still have a lot of leverage because they are in talks with the company for a new credit line, which WorldCom badly needs. Many bondholders fear that in exchange for money, the banks will demand collateral and bootstrap themselves above other creditors," the Wall St. Journal reported on Friday.