Independent Examiner For WorldCom
The federal judge overseeing the WorldCom bankruptcy case approved a Justice Department request to allow the appointment of an independent examiner to investigate for mismanagement, irregularities and fraud.
U.S. Bankruptcy Judge Arthur J. Gonzalez in Manhattan granted the request, filed by the office of U.S. Trustee Carolyn Schwartz, late Monday evening after approving $2 billion in financing to keep WorldCom operating as it reorganizes its finances.
The examiner would have the power to request documents detailing the company's transactions. WorldCom has agreed with the request, according to court documents.
"We're going to get a guy who's disinterested and on the job and off we go," said John Byrnes, a lawyer with the U.S. Trustee's office, said after the hearing.
On Sunday, WorldCom filed for Chapter 11 protection, the largest bankruptcy in U.S. history, about a month after disclosing it had falsely inflated profits by nearly $4 billion.
Attorney General John Ashcroft said an independent examiner "will provide transparency to the process and enhance accountability."
"In turn this should increase public confidence in the conduct of the case and help preserve value and protect the creditors and shareholders, including small creditors and those whose pension funds are invested in WorldCom," he said.
The request indicates the government believes that step is needed to protect WorldCom shareholders' interests through the bankruptcy process. An examiner, who would be accountable to the court and not the creditors' committee, was appointed in the Enron case to investigate the energy-trading company's collapse.
An examiner also can turn over relevant material to the Justice Department if this person discovers activities by company executives believed to warrant investigation.
The examiner would issue a report within 90 days after appointment, according to a Justice Department official close to the case. Charges could be filed based on the examiner's findings.
The Justice Department has also opened a criminal investigation into the downfall of WorldCom. The results of the investigation would only be made public if the government brings charges against the company. Such charges could take months or years.
The Securities and Exchange Commission, citing "accounting improprieties of unprecedented magnitude," last month filed civil fraud charges against WorldCom, a day after the company disclosed a nearly $4 billion hole in its books. The SEC is continuing its civil investigation of the company and the Justice Department is pursuing a criminal inquiry.
Clinton, Miss.-based WorldCom admitted June 25 that it falsely accounted for $3.85 billion in expenses, which inflated profits. That day, it fired chief financial officer Scott Sullivan, who was subsequently accused by the company's auditor, Arthur Andersen, of withholding crucial information about WorldCom's bookkeeping.
On Monday, WorldCom's chastened but optimistic chief executive said that the company hopes to emerge from court protection within a year with a shrunken debt load and fewer peripheral assets.
"We fought hard and frantically to avoid this, but ultimately the board thought that taking this action was the best way to help the greatest number of people," CEO John Sidgmore said during at a news conference. "Frankly, it became the only way to provide for our company's future."
Sidgmore said WorldCom's staggering $30 billion debt load had forced it to seek Chapter 11 protection in federal bankruptcy court, and hoped a more streamlined company would emerge by next year.
"We don't really believe our competitors would be smart to relax during this period," Sidgmore said.
Sidgmore said WorldCom hoped to emulate the successful emergence from bankruptcy protection of U.S. corporations such as Continental Airlines, Texaco, Federated Department Stores and Southland Corp.
Chapter 11 protection would allow WorldCom to operate its business as normal, paying employees and suppliers while providing service to its Internet access customers and the 20 million long-distance telephone subscribers of its MCI unit.