WorldCom Admits $3.8 Billion Accounting Trick

June 26, 2002 -- In one of the largest corporate accounting scandals ever, long-distance phone company WorldCom has revealed it cooked its books by nearly $4 billion, prompting government fraud charges and a rebuke from the president.

WorldCom said it inflated profits for five quarters, and instead of making $1.4 billion last year, actually lost money. In a statement, WorldCom acknowledged it had incorrectly listed expenses of $3.055 billion from 2001 and $797 million from the first quarter of 2002 as capital investments.

By accounting for routine operating expenses as long-term capital expenses, the firm's quarter-to-quarter financial picture was made to seem much rosier than it actually was.

This evening, Securities and Exchange Commission chairman Harvey Pitt announced the agency has filed a fraud charge against WorldCom in a federal court in New York.

"The SEC is filing an action against WorldCom … charging it with fraud," announced Pitt, adding "We are seeking an order to prevent the disbursement of assets and of payouts to executives … and to prevent any destruction of documents."

In Canada today for the opening of the G8 summit, President Bush called WorldCom's announcement "outrageous," adding that the government "will fully investigate and hold people accountable."

An official at the Department of Justice indicated to ABCNEWS that the DOJ was looking into the matter as well.

Company in Peril

This latest news could be the final blow to a company that has already been in a stunning decline. The company's value has gone from more than $115 billion to less than $1 billion.

At the same time, WorldCom's stock has fallen from a high of $62 to a low of under $1. Trading of the stock on the Nasdaq exchange was halted this morning, after the company's shares closed at 83 cents on Tuesday.

"This has been a very tough week for WorldCom, there's no doubtabout it," said WorldCom chief executive JohnSidgmore in a taped Webcast. Sidgmore replaced former WorldCom founderBernie Ebbers in April and he called the accounting disclosure "a shock" and "an undeniable setback."