WASHINGTON – Two key former WorldCom (WCOM) executives Monday refused to talk before a House committee investigating the telecommunications giant's nearly $4 billion in accounting irregularities.
"I do not believe I have anything to hide in these or any other proceedings," company founder and former chairman Bernard J. Ebbers told the House Financial Services Committee. He said he'd been advised by his Washington attorney to remain silent because of the range of investigations by the Justice Department and Securities and Exchange Commission.
WorldCom's former chief financial officer, Scott Sullivan, also refused to testify, "based upon the advice of counsel."
Members of the committee — Democrats and Republicans alike — attacked the company, the Andersen accounting firm and Wall Street analyst Jack Grubman, who promoted WorldCom stock.
Several grilled Ebbers, asking for example about the $400 million in loans he received from WorldCom and his $1.5 million severance package. Ebbers, sitting stonily with arms crossed, repeatedly cited his Fifth Amendment privilege and said he would not answer.
WorldCom is the latest major corporation to face allegations of executive wrongdoing and accounting irregularities — driving down public confidence in business and the stock market. Congress already is investigating the bankruptcies of Enron Corp. and telecommunications company Global Crossing and the role played by accounting firms. Andersen has been convicted of obstruction of justice for destroying Enron-related documents.
Just Monday, pharmaceutical titan Merck & Co. revealed that in the past three years, it had counted $12 billion in revenue that it never collected.
Meanwhile, John Sidgmore, WorldCom's president and chief executive officer, blamed the company's former auditor for one of the biggest accounting scandals in U.S. history.
"WorldCom uncovered this problem internally," Sidgmore said in prepared testimony. "The kind of initiative demonstrated by our internal audit group is to be applauded and will continue to be encouraged."
WorldCom Chairman Bert Roberts called the accounting improprieties "an outrage to me," and said auditor Arthur Andersen was responsible. "To my mind, the failure of our outside auditors to uncover them is inconceivable," he said.
Former Andersen partner Melvin Dick countered that auditors rely "on the honesty and integrity of the management of the company." He said he understands Sullivan has acknowledged he never told the accounting firm about the questionable bookkeeping.
Dick testified that neither he nor anyone on the Andersen team "had any inkling" of the improper accounting.
Rep. Barney Frank, D-Mass., lashed out at Dick, saying, "I congratulate you on your ability to evade so calmly."
Wall Street analyst Jack Grubman, who had promoted WorldCom stock, said in testimony prepared for the hearing, "I regret that I was wrong in rating WorldCom highly for too long" but insisted he was unaware of the company's true financial condition.
Grubman also insisted he had no advance knowledge of the huge earnings misstatement before downgrading his recommendation for WorldCom stock on June 21.
WorldCom, whose interests include No. 2 long-distance telephone company MCI, is battling to avoid bankruptcy after disclosing it disguised $3.9 billion of expenses as capital expenditures to appear more profitable.
The SEC has filed a civil fraud suit against WorldCom, and the Nasdaq Stock Market plans to delist the company's shares, which have plunged from more than $63 in June 1999 to 22 cents Monday.
In an attempt to boost sagging investor confidence, President Bush is proposing tougher penalties — including jail time — for corporate officials who lie on financial statements, an administration official said Monday.
The White House planned to endorse the goals — but not all the details — of legislation now before the Senate written by Banking Committee Chairman Paul Sarbanes, D-Md., that would tighten oversight of the accounting industry. The administration wants to empower the SEC to ban corporate executives and directors who commit wrongdoing from serving in those roles again, a step the bill does not take, but which Democrats support.
Lawmakers agreed.
"As long as these people can walk away with millions of stock options, having brought a company to bankruptcy, without going to a real jail, I think American investors are going to be suspicious," said Rep. Billy Tauzin, R-La., chairman of the House Energy and Commerce Committee. His panel is investigating the Enron and Global Crossing bankruptcies.
But Democrats looking forward to mid-term elections are playing up the scandal as an example of Bush's hypocrisy, saying the president himself once profited by nearly $900,000 from questionable stock dealings.
Critics charge that according to SEC documents, Bush in 1990 sold stock in Harken Energy based on insider information, failed to disclose those sales in a timely manner as required and hid losses in the company to inflate its stock price.
Bush supporters have called the Democratic allegations baseless and a SEC investigation found no wrongdoing by Bush.
A string of lawmakers, including Senate Majority Leader Tom Daschle, D-S.D., Sen. John McCain, R-Ariz., and Rep. John Conyers of Michigan, the House Judiciary Committee's top Democrat, has called for the resignation of SEC Chairman Harvey Pitt, in part because of his former ties to the accounting profession.
Rep. Spencer Bachus, R-Ala., a staunch administration supporter, said Monday, "There is now some question" whether Pitt is the right person to head the market watchdog agency.
The Associated Press contributed to this report.
Get all the stories you need-to-know from the most powerful name in news delivered first thing every morning to your inbox