Ebbers’ Role in WorldCom Woes Probed
A House committee investigating WorldCom Inc.’s $3.9-billion accounting fiasco and other events that led to the nation’s biggest bankruptcy filing sought more detailed evidence late Tuesday on what former Chairman Bernard J. Ebbers knew about the improper transfers on the company’s books.
The House Committee on Financial Services also requested more information about the role that stock analyst Jack B. Grubman played at the company. Grubman, who promoted WorldCom and other telecom stocks, attended board meetings and had access to the company’s financial information days before it was public. Grubman works for Salomon Smith Barney, the investment banking unit of Citigroup Inc.
“We’re seeking far more detailed information on the questions raised at the committee hearings” earlier this month, said committee spokeswoman Peggy Peterson.
The committee sent letters to WorldCom Chief Executive John W. Sidgmore, Citigroup deputy general counsel Jane C. Sherbourne and former Arthur Andersen accounting partner Melvin Dick, who oversaw the firm’s audits of WorldCom and other telecommunications companies.
WorldCom is “fully cooperating with all investigative bodies,” said spokesman Brad Burns. Salomon has a “policy to cooperate fully with any reasonable and legally permissible request by the committee,” said spokeswoman Mary Ellen Hillery. Both declined further comment. Dick could not be reached.
In its letter to Sidgmore, the committee requested information on whether Ebbers was aware that former Chief Financial Officer Scott D. Sullivan was moving routine expenses to the capital expenditure line, effectively boosting revenue by $3.9 billion over 15 months and allowing the company to post profits instead of losses.
The committee did not ask whether Ebbers knew that transferring the funds was improper or fraudulent. Sullivan, who was fired June 25, has maintained that the transfers weren’t fraudulent. The letter also asks about claims in the trade periodical Telecom Manager’s Voice Report that the company overbilled customers by $1.8 billion to $3.5 billion to inflate revenue.
The letters to Sidgmore and Sherbourne ask for details about Grubman’s role at WorldCom and his activities as an analyst, including whether he has ever issued a “sell” recommendation on a telecom stock. Committee Chairman Michael G. Oxley (R-Ohio) has questioned whether Grubman’s failure to recommend that investors sell WorldCom stock until it became nearly worthless is related to the “hundreds of millions of dollars” his company earned in underwriting fees from WorldCom.
Meanwhile, WorldCom’s three main bondholder groups are maneuvering to get back as much as possible of the $30 billion they’re owed in the firm’s reorganization.
How they’ll fare depends on whether WorldCom, its MCI long-distance phone unit and its Intermedia Communications Inc. phone and data unit are combined or treated separately in a Chapter 11 recovery plan.
Late Monday, U.S. Bankruptcy Judge Arthur J. Gonzalez approved a Justice Department request to appoint an independent examiner to investigate possible fraud, mismanagement and irregularities at WorldCom. The examiner would have the power to request documents detailing the company’s transactions.
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Bloomberg News and Associated Press were used in compiling this report.
