geert lovink on Wed, 26 Jun 2002 16:14:12 +0200 (CEST)

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<nettime> Flash! WorldCom Tells of Huge Fraud

(Work at the Dotcom Observatory came to a short hold after today's
announcement of a massive fraud at WordCom. With senior staff on paternity
leave, only one junior partner was able to comment: "This is massive.
WordCom's stock had already plumeted but this scheme is Enron for the telco
sector. It is likely that Vint Cerf will now step down from his  ICANN and
Internet Society posts? No one knows yet. Worldcom was the number one
darling of the George Gilders, Barlows and the whole Wired gang that could
not stop writing triumphal features about their business darling." A more
comprehensive Dotcom Observatory report is due to come soon. Research at the
observatory resumed later on in the day. /geert)

Worldcom pressrelease:
020625 report:

      WorldCom Tells of Huge Fraud

      06/25/2002 10:12 PM EDT

Updated from 8:33 PM EDT
WorldCom committed "massive fraud" with its financial statements during the
last five quarters, it was reported Tuesday night.

According to the report, first aired on CNBC, the telecommunications company
inflated its earnings before interest, taxes, depreciation and amortization,
a measure of cash flow, by $3.8 billion over the last five quarters.

The report also indicated that Chief Financial Officer Scott Sullivan was
dismissed sometime in the last two days. A separate report indicated that
the overstatement was discovered during an internal investigation.

The company announced it would reissue its financial statements for 2000 and
the first quarter of 2001.

The CNBC report said WorldCom had at least for the last five quarters
treated certain ordinary costs as capital expenditures.

WorldCom closed at 83 cents, down 8 cents on the day, and plunged to 35
cents in after-hours trading on Instinet.

An internal audit of the company's capex accounting determined that certain
transfers from line cost expenses to capital accounts were not made in
accordance with generally accepted accounting principles.

"Our senior management team is shocked by these discoveries," said WorldCom
CEO John Sidgmore, who was appointed on April 29. "We are committed to
operating WorldCom in accordance with the highest ethical standards."

The amount of the transfers was $3.055 billion for 2001 and $797 million for
the first quarter of 2002, the company said. Without those transfers, the
company's reported EBITDA would be reduced to $6.339 billion for 2001 and
$1.368 billion for the first quarter of 2002, and the company would have
reported a net loss for 2001 and the first quarter of 2002.

The company asked its new external auditors, KPMG, to conduct a
comprehensive audit of the financial statements for 2001 and 2002. The
company also notified accountant Arthur Andersen, which had audited
WorldCom's financial statements for 2001 and reviewed such statements for
first-quarter 2002.

According to the company, Andersen on Monday told WorldCom that due to the
inappropriate transfers of line costs, its audit report on the company's
financial statements for 2001 and Andersen's review of the company's
financial statements for the first quarter of 2002 could not be relied upon.

The company will issue unaudited financial statements for 2001 and for the
first quarter of 2002 as soon as practicable, it said. When an audit is
completed, the company will provide new audited financial statements for all
required periods, it said.

The company also has accepted the resignation of David Myers as senior vice
president and controller.

"I want to assure our customers and employees that the company remains
viable and committed to a long-term future," Sidgmore said. "Our services
are in no way affected by this matter, and our dedication to meeting
customer needs remains unwavering."

"I have made a commitment to driving fundamental change at WorldCom, and
this matter will not deter the new management team from fulfilling our

Even before the report aired, the company's stock was a shadow of what it
once was. WorldCom has been dogged for months by worries about its debt
load, and in the spring, longtime CEO Bernie Ebbers stepped down from his

The move did little to cheer investors, who have been bailing out of the
stock as quickly as they can just in case the company should be forced to
restructure its debt.

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