WorldCom's USD3.8bn false accounting revealed
26 June 2002 -- WorldCom is cutting 17,000 staff and could be facing bankruptcy after it revealed that 2001 profits were overstated by USD3.8bn, through counting ordinary expenses as capital expenditures .
26 June 2002 -- WorldCom, the USA's second-largest long-distance carrier, is cutting 17,000 of its 80,000 staff (already cut by 12,700 since the beginning of 2001). Also, it could be facing bankruptcy after it revealed to the US Securities and Exchange Commission that 2001 profits were overstated by USD3.8bn, through counting ordinary expenses as capital expenditures (which are deducted from revenue over a longer period).
CFO Scott Sullivan has been sacked and senior vp and controller David Myers has resigned. Arthur Andersen LLP (which also audited Enron) had already been replaced by KPMG LLP in mid-May. Restating results for the last five quarters will most likely wipe out profits of USD1.5bn in 2001 and USD130m for Q1/2002. The US Justice Department has begun a criminal investigation.
Shares were already down more than 90% on the start of 2002 and its debt has been downgraded to "junk status" after it cut its sales forecast for 2002 by at least USD1bn. During an investigation by the US Securities and Exchange Commission in April founder and CEO Bernard J Ebbers was replaced by John Sidgmore.
In early June, to help ease its USD30bn debt, WorldCom said it was selling its wireless resale business, laying off some of the 2,200 staff at WorldCom Wireless, and cutting capital spending again from another USD4.5bn to USD3.5bn.