MCI Worldcom Going Bankrupt?

[CREAMYALMONDZ]

*Has our prayers been answered? READ:*

PHILADELPHIA (Reuters) - U.S. regulators charged WorldCom Inc. with fraud on Wednesday, after the communications giant admitted it hid almost $4 billion of costs, bringing it to the brink of bankruptcy in one of the biggest accounting scandals ever.

President Bush said he was "deeply concerned" and called for a full investigation of a scandal that rivals the collapse of bankrupt energy trader Enron Corp. WorldCom's stocks and bonds caved on the news, and sent shock waves throughout global markets.

In a civil lawsuit filed in federal court in New York, the Securities and Exchange Commission charged WorldCom with acting to manipulate its earnings to keep them in line with Wall Street's expectations.

The U.S. Justice Department which has the power to bring criminal charges, said Clinton, Mississippi-based WorldCom was under review, but declined further comment. Its investigation of Enron led to the conviction earlier this month of auditor Andersen, which also had vetted WorldCom's books.

The revelation of dodgy accounting could derail WorldCom's efforts to secure $5 billion in new financing and force it into bankruptcy, analysts said. A source close to WorldCom's banks said the deal is dead, leaving it with insufficient funds to cover expenses and interest payments on $30 billion in debt.

"Bankruptcy is now a distinct and near-term possibility," said CS First Boston analyst Dan Reingold.

The size of the scandal that the company disclosed Tuesday night shocked even hardened Wall Street veterans, causing people to wonder who's next and when the wave of corporate scandals will end.

"Destruction of investor confidence of this magnitude hasn't occurred in roughly 70 years," said Ray Soifer, a former Wall Street bank analyst who now is a private consultant.

'UNPRECEDENTED MAGNITUDE'

WorldCom booked operating costs, such as fees to access other carriers' networks, as long-term capital investments, a move that allowed it to hide expenses, inflate cash flow and artificially post profits.

WorldCom, which already was under investigation by the SEC, said it discovered the accounting problem during a routine internal audit. The company switched auditors from Andersen to KPMG this year.

"Starting at least in 2001, WorldCom engaged in an improper accounting scheme intended to manipulate its earnings to keep them in line with Wall Street's expectations, and to support WorldCom's stock price," the SEC said in the lawsuit, which was filed in United States District Court for the Southern District of New York.

The scheme, which was "directed and approved by its senior management," allowed WorldCom to fraudulently report 2001 cash flow of $2.393 billion, rather than its actual loss of $662 million, the SEC said. In the first quarter of 2002, WorldCom incorrectly reported cash flow of $240 million, rather than a loss of about $557 million.

WorldCom on Tuesday night fired Scott Sullivan, its chief financial officer since 1994, and said it would restate results for the last five quarters, erasing all profits from the beginning of 2001. It also said it would review its financial forecasts.

"There's going to be more restatements (by WorldCom), if they cooked the books this badly in 2001, they need to check previous years," said Scott Cleland, chief executive of the independent research firm Precursor Group.

"It's not just going to take forensic accounting, it's going to take archeological accounting."

The SEC sought an order preventing WorldCom from disposing of assets, destroying documents and making payouts to senior officers.

CONGRESS PLEDGES ACTION

WorldCom's accounting debacle further soured already skittish investors after such high-flying companies as Enron, telecom giant Global Crossing Ltd. and conglomerate Tyco International Ltd. crashed on opaque accounting.

Three bond rating agencies slashed WorldCom's debt ratings deeper into "junk" territory, citing the increased likelihood of default. WorldCom bonds traded as low at 11 cents on the dollar.

Trading in WorldCom Group shares, which peaked at more than $64 in 1999, was halted after losing nearly all their remaining value in pre-market trade, plunging to 9 cents a share.

Stock markets reeled from Asia to Europe to the United States, with already beleaguered telecoms stocks touching new, historic lows. The North American Telecom Index lost 7 percent, but Wall Street recovered late in the afternoon as investors picked up a slew of beaten-down shares.

WorldCom, which had forced out its former chief executive, Bernie Ebbers, in April, said it was as upset as everyone else. "We were certainly as equally outraged as the president that these events took place and we are working to try to restore public trust," said spokesman Brad Burns.

Bush told aides he was "mad as hell" about the lack of corporate responsibility in America. U.S. lawmakers pledged quick congressional action to tighten accounting standards and hold top company executives and investment houses accountable.

TELECOMS SUFFER

Analysts said the scandal could foreshadow deeper problems for rivals such as Qwest Communications International Inc., which also faces an accounting inquiry.

Shares of Qwest, which said it was cooperating with the SEC's probe, fell 58 percent on the New York Stock Exchange.

"Even if a company comes out with so-called good numbers, who can believe them?" said Charles Payne, market analyst at Wall Street Strategies.

Since WorldCom moved quickly to fire Sullivan, it may be able to convince its lenders that new CEO John Sidgmore, who was in Washington talking to customers and employees, can rid problems and restore credibility, some analysts said.

"Sidgmore is cleaning up the mess from the previous administration. So, it boils down to whether the bankers have confidence in Sidgmore," said Frank Dzubeck, president of consulting firm Communications Network Architects.

Former CFO Sullivan, 40, was credited with the plan to buy MCI and orchestrated a surging stock price at WorldCom to fund more than 60 acquisitions over a decade.

"When you look at the history of WorldCom, and their acquisition trail, you have a classic wheeler-dealer. And now this is the age were wheeler-dealers get called for what they are," Dzubeck said.

[soraya]

HMMM, INTERESTING INDEED

[danielle]

This has been a "shocking blow" to Mississippi...we're already the poorest state in the union!!

Qwest - the other company mentioned in the article - is the comapy of crooks who handles the Alabama prison phone system.

[CREAMYALMONDZ]

Yeah I heard about Qwest, I'm not to familiar with them though. I'm wondering if MCI Worldcom is the cheapest as far as collect calling even though they are scam artists.

[aprilcat]

leonda: here in nc, they use evercom. their rates vary ~ it's odd. my 10 minutes calls from my pal here in nc (about one hour north of me) run $3.65.

mci is my long distance company ~ i had a big ole fight with at&t years ago that i still haven't forgiven them over, so i might have to jump ship to sprint!

[Daveswife]

No wonder they're disconnecting all of us at alarming rates these days.
Good bye MCI!!!!!!!!!

[CREAMYALMONDZ]

That's crazy! $3.00 for ten minutes? Goodbye MCI!

[Cameo]

Leonda Did you ever get your phone unblocked from MCI...When I went to VA for my visit, they blocked me while I was away. My bill was $400.00. I paid it and they 'tried' to get me to put a 200.00 deposit, but I fought them on this. They actually made me stay on the line to talk to my phone company here to establish that I paid my bill on time...I hated it, but I wasn't going to give them money ahead of time. I am doing everything in my power to figure out how to get them out of my life! I'm looking into PrivateLines, now that Vic has been transferred to Sussex I in Waverly, VA. Should know by next week if its viable!

[Sexesweet]

yes i have heard about that to.