Two days after President Bush signed legislation designed to crack down on corporate fraud, federal authorities arrested two former WorldCom executives for their roles in one of America’s largest accounting scandals.
Former WorldCom chief financial officer Scott D. Sullivan and former controller David F. Myers were charged Thursday with securities fraud, conspiracy to commit securities fraud and submitting false filings with the Securities and Exchange Commission.
Buckling under stiff competition, slack broadband demand and a steep debt load, Clinton, Miss.-based WorldCom stunned the world June 25 when it disclosed inaccurately posting $3.85 billion in earnings over five quarters by booking expenses as capital expenditures.
Authorities allege Sullivan and Myers forged an elaborate accounting scheme in order to meet Wall Street’s earning expectations.
With expenses rising as a percentage of total revenue beginning around July 2000, WorldCom risked failing to meet analysts’ expectations, the complaint states. To meet analysts’ expectations, the financial officers “devised a scheme to hide WorldCom’s increasing expenses by causing substantial portions of WorldCom’s line costs to be transferred from WorldCom’s income statement into its capital expenditure accounts,” according to the complaint.
The accounting scandal has alienated WorldCom - the No. 2 long distance carrier and largest Internet backbone provider - from its lenders, forcing the telecom giant to file the largest bankruptcy petition in U.S. history. The disclosures ignited separate investigations led by Congress, the Justice Department and the SEC.
Sullivan and Myers are not the only execs facing a possible prison term if they are convicted or plead guilty to one of the felony counts. John Rigas, the cable TV mogul who founded Adelphia Communications Inc., was publicly humiliated this summer after federal authorities arrested him and his two sons on felony charges of conspiracy and securities, wire and bank fraud.
In what the SEC described as “one of the most extensive financial frauds ever to take place at a public company,” the Rigas family and two other former Adelphia executives could face up to 30 years in prison if they plead guilty to or are convicted of bank fraud.
