WASHINGTON – In an attempt to restore faith in the Bush administration's responses to corporate scandals, the Justice Department has asked a federal judge to appoint an independent examiner to investigate the bankruptcy deal and contributing mismanagement, irregularities and fraud that led to WorldCom's fall.
U.S. Bankruptcy Judge Arthur J. Gonzalez was to consider the request, filed Monday by U.S. Trustee Carolyn Schwartz. Senior administration officials said they hope to have someone named to the post by the end of this week.
"This action will provide transparency to the process and enhance accountability," said Attorney General John Ashcroft. "In turn this should increase public confidence in the conduct of the case and help preserve value and protect the creditors and shareholders, including small creditors and those whose pension funds are invested in WorldCom."
The request indicates that the government believes shareholders' interests need to be protected through the bankruptcy process. WorldCom stock has dipped from a high of $64.50 in June 1999 to just pennies per share.
If the request is granted, the independent examiner, for which WorldCom has given a thumbs up, will be able to issue subpoenas to investigate the company's transactions and would be accountable to the court that is reviewing the bankruptcy deal. The examiner will investigate fraud and misconduct, preserve records, and make sure no expenditures of assets outside of normal operations occur.
The examiner would have 90 days to report a review of the company. If the examiner finds materials that bring into question the activities of company executives, then he or she can turn over the relevant material to the Justice Department for further investigation. DOJ is conducting a separate criminal investigation into the telecommunications firm's collapse.
One official said that WorldCom's management has been cooperative so far, but the examiner in theory should be able to get ahold of any documents requested.
"[WorldCom] management has expressed a strong desire to cooperate with anybody involved in this matter. They have been cooperative so far," the official said.
WorldCom declared bankruptcy on Sunday and sought protections from creditors under Chapter 11 regulations. In turn, a group of lenders, including Citigroup, J.P. Morgan Chase Bank and General Electric Capital Corp., have agreed to extend a $2 billion line of credit to the company, which officials say will help it stay afloat for another year while it restructures.
Last month, WorldCom, which owns the second largest long distance carrier MCI, disclosed that it had falsely counted $3.85 billion as capital expenses rather than operating expenses, making it appear that the company was profitable.
It fired chief financial officer Scott Sullivan, who was subsequently accused by the company's auditor, Arthur Andersen, of withholding crucial information about WorldCom's bookkeeping.
An examiner is also reviewing the bankruptcy of energy giant Enron Corp., which in December declared what was then the largest bankruptcy in U.S. history. WorldCom reported Sunday that it had $107 billion in assets, but $65 billion in debts.
Fox News' Ian Christopher McCaleb and the Associated Press contributed to this report.