Former top executives of WorldCom refused to testify yesterday – only to hear Congressmen warn that jail time could await those found responsible for the $3.8bn (£2.5bn) accounting scandal that has brought the telecoms giant to its knees.
Both WorldCom's founder and former chairman, Bernard Ebbers, and chief financial officer, Scott Sullivan, invoked their Fifth Amendment rights protecting against self-incrimination.
But Mr Ebbers could not resist a defiant outburst that drew a furious response from members of the House Financial Services committee, as the hearing got under way. "I have nothing to hide," Mr Ebbers maintained, after declining to answer questions. "But preliminary statements can be taken out of context." When WorldCom's problems were fully aired, he would be shown to have not engaged in "fraudulent or criminal wrongdoing".
His attempt to avoid giving testimony while protesting his innocence infuriated the panel. Its chairman, the Ohio Republican Michael Oxley, told Mr Ebbers that the committee could recall him and question him about matters covered in his initial statement – and perhaps to charge him with contempt of Congress. "Make no mistake, the consequences to this sort of criminal activity, should it be proved, should be severe, and that may mean time in federal prison," he said.
With the two most central witnesses beyond its reach, the committee turned its fire on two other key figures in the débâcle: Melvin Dick, the lead auditor from Arthur Andersen, WorldCom's auditors, and Jack Grubman, the top telecoms analyst for Salomon Smith Barney and WorldCom's biggest cheerleader on Wall Street.
Under often torrid questioning, Mr Grubman – a friend of Mr Ebbers – denied he had an improperly close relationship with the company, even though he acknowledged having attended three WorldCom board meetings, a most unusual occurrence for a company and its most influential analyst.
"I was deceived by the company reports," at one point claimed Mr Grubman, who told the committee he made about $20m a year. "If what is alleged is true, for the last five quarters I was deceived." Mr Grubman was recommending WorldCom stock until March, a month before the resignation of Mr Ebbers and three months before the accounting irregularities were revealed.
Mr Dick was also squarely in the firing line, as he tried to explain another accounting failure by Andersen, convicted in June of obstruction of justice in the case of Enron.
The former Andersen partner said he had "no inkling" of how WorldCom was cooking its books. "We have to find out all the facts," he said, blaming WorldCom's former management for keeping the facts from him. But that cut no ice with Bert Roberts, WorldCom's chairman. Mr Roberts took little part in management in the Ebbers era, although he received a $1.05m salary.
As such Mr Roberts is a prime specimen of directors who have failed to perform their duty of protecting shareholders. In prepared testimony, he blamed Andersen. "The failure of our outside auditors to uncover [irregularities] is to my mind inconceivable."
The massive discrepancy was uncovered by an in-house WorldCom auditor, Cynthia Cooper. Ms Cooper, who is believed to be co-operating with federal investigators, will not be testifying.
Earlier, WorldCom's new chief executive, John Sidgmore, reaffirmed his determination to keep the company alive, despite a growing view that a bankruptcy filing is inevitable.
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