Southern California Improper Accounting Attorneys
WorldCom
WorldCom is a communications company located in over 65 countries. WorldCom offers Internet, voice and data solutions.
MCI is a division of WorldCom.
The Securities and Exchange Commission filed an amended complaint against WorldCom, Inc. The amended complaint, filed in the Commission's pending civil action in federal district court in New York with WorldCom's consent, adds claims that WorldCom violated the antifraud provision of the Securities Act of 1933 (Section 17(a)), in connection with several securities offerings during the fraud, and also violated the internal controls and books and records provisions of the Securities Exchange Act of 1934 (Sections 13(b)(2)(A) and 13(b)(2)(B)). The amended complaint broadens the Commission's charges to allege that WorldCom misled investors from at least as early as 1999 through the first quarter of 2002, and further states that the company has acknowledged that during that period, as a result of undisclosed and improper accounting, WorldCom materially overstated the income it reported on its financial statements by approximately $9 billion
The SEC said in its civil lawsuit that the scheme was "directed and approved by WorldCom's senior management and allowed WorldCom to fraudulently report 2001 cash flow of $2.393 billion, rather than its actual loss of $662 million”. The SEC said that in the first quarter of 2002, WorldCom incorrectly reported cash flow of $240 million, rather than a loss of about $557 million
WorldCom responded to charges by making the following statement:
CLINTON, Miss., June 25, 2002 - WorldCom, Inc. (NASDAQ: WCOM, MCIT) today announced it intends to restate its financial statements for 2001 and the first quarter of 2002. As a result of an internal audit of the company's capital expenditure accounting, it was determined that certain transfers from line cost expenses to capital accounts during this period were not made in accordance with generally accepted accounting principles (GAAP). The amount of these transfers was $3.055 billion for 2001 and $797 million for first quarter 2002. Without these transfers, the company's reported EBITDA would be reduced to $6.339 billion for 2001 and $1.368 billion for first quarter 2002, and the company would have reported a net loss for 2001 and for the first quarter of 2002.
"Our senior management team is shocked by these discoveries," said John Sidgmore, appointed WorldCom CEO on April 29, 2002. "We are committed to operating WorldCom in accordance with the highest ethical standards." The company has terminated Scott Sullivan as chief financial officer and secretary and has accepted the resignation of David Myers as senior vice president and controller.
WorldCom also stated that it notified Anderson LLP (its accounting firm) promptly upon discovering accounting irregularities. WorldCom also stated that it had recently engaged external auditors, KPMG LLP to undertake a comprehensive audit.
UPDATE:
On January 29, 2003, the Securities and Exchange Commission filed a civil fraud injunctive action in the United States District Court for the Southern District of New York against KPMG LLP and four KPMG partners - including the head of the firm's department of professional practice - in connection with KPMG audits of Xerox Corporation from 1997 through 2000. The complaint charges the firm and four partners with fraud, and seeks injunctions, disgorgement of all fees and civil money penalties.
