The Financial Services Committee of the U.S. House of Representatives has voted to subpoena WorldCom Inc. executives and a telecommunications analyst for a hearing Monday into the company’s accounting irregularities revealed this week by WorldCom.
Former WorldCom Chief Executive Officer Bernard Ebbers; current President and CEO John Sidgmore, who replaced Ebbers; former Chief Financial Officer Scott Sullivan, whose firing was announced Tuesday, and Jack Grubman, a telecommunications analyst at Salomon Smith Barney Holdings Inc., all will be subpoenaed, the committee said in a statement. A time for the hearing has not yet been set, according to a spokeswoman at the committee office.
“The WorldCom news dramatically underscores the need for legislative and regulatory reform,” said Committee Chairman Michael Oxley in the statement. “Problems with accounting in telecommunications are, unfortunately, damaging a key growth sector of the economy that is already facing other, steep challenges.”
WorldCom, based in Clinton, Miss., announced Tuesday after the close of the regular trading day that it would restate 2001 and 2002 first quarter financial reports after uncovering accounting irregularities of about US$3.8 billion. Sullivan was fired and the company accepted the resignation of David Myers, senior vice-president and controller.
The announcement slammed financial markets Wednesday and sent WorldCom shares reeling until trading in the company’s shares was halted. The effect of the issues involved on the bond and capital markets is worrisome to legislators and regulators, the House committee statement noted, adding that there is a pressing need to push for changes as soon as possible.
The U.S. Securities and Exchange Commission (SEC) reacted to the WorldCom announcement Wednesday with a lawsuit filed in U.S. District Court for the Southern District of New York alleging fraud. The suit, which seeks financial penalties and calls for a corporate monitor to make certain WorldCom does not destroy documents related to an SEC investigation, alleges that WorldCom engaged in “a scheme directed and approved by its senior management … (that) disguised its true operating performance by using undisclosed and improper accounting that materially overstated its income.”