SEC Investigating WorldCom, Qwest
Stepping up its investigation of the telecommunications industry’s accounting practices, the Securities and Exchange Commission has demanded internal documents from WorldCom Inc. and Qwest Communications International Inc.
Both companies Monday acknowledged receiving requests for information. The SEC is examining the books of telephone-and-data service providers after the bankruptcies of Enron Corp. and Global Crossing Ltd. Investors have questioned whether the carriers improperly boosted sales by swapping network space.
The SEC’s enforcement division is seeking documents on WorldCom’s accounting for so-called goodwill and a charge taken in 2000 as well as information on company loans to top officials. The firm was also asked for disputed customer bills and sales commissions, organizational charts and personnel records of former workers, and information on its tracking and review of analysts’ profit estimates.
WorldCom, the second-biggest U.S. long-distance phone company, said its practices complied with accounting standards and laws.
The SEC requested information on a charge WorldCom took in the third quarter of 2000. The company said in October 2000 that the $405-million charge was related to domestic and international wholesale bills it couldn’t collect because of customer bankruptcies, litigation and contractual disputes.
The SEC’s informal request also covers WorldCom’s handling of a change in rules for goodwill accounting. WorldCom said last month it might have a write-down of $15 billion to $20 billion for the change in accounting rules for goodwill, which is the difference between the price paid for an asset and its book value.
Shares of Clinton, Miss.-based WorldCom have been punished by investor fears that the company’s slowing revenue growth, competition with other Baby Bells and a glut in capacity would lead it to the same fate as competing telecom companies, such as Global Crossing, that have filed for bankruptcy.
WorldCom shares, off 18 cents to $9.01 in regular Nasdaq trading, dropped to $8.39 in after-hours activity on news of the SEC request.
Also on Monday, Qwest acknowledged an inquiry into the former Baby Bell’s accounting practices in 2000 and 2001. Denver-based Qwest said it planned to respond fully to the request.
The inquiry also focuses on equipment sales Qwest made to customers such as KMC Telecom Holdings Inc., which sold Internet services back to Qwest, and changes in the production schedules and lives of some phone directories.
“They’ve asked us for some documents,” Chief Executive Joe Nacchio said. “They haven’t told us why, other than they want to explore these areas. We’ll just let that play out.”
Qwest said sales of optical capacity in which there were reciprocal agreements with customers made up 2.8% of revenue in 2000 and 5.1% of revenue in 2001. Revenue from sales of Internet equipment to customers who then bought Internet services from Qwest was less than 1% in both years, as was revenue from changes in its phone directories.
A lawsuit filed last month on behalf of shareholders alleges those deals were used to artificially pump up Qwest’s revenue.
Qwest Communications International shares fell 25 cents to close at $9.46 on the New York Stock Exchange.
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Associated Press, Bloomberg News and Reuters were used in compiling this report.
