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Analysts: US Investors Still Uneasy Despite High Profile WorldCom Arrests - 2002-08-01


The U.S. Justice Department Thursday filed criminal fraud charges against the former chief financial officer of WorldCom, the largest U.S. company to file for bankruptcy.

It was a spectacle intended for television cameras and newspaper front pages. Two former top executives of the WorldCom telecommunications company were handcuffed, brought into federal court and charged with financial fraud. Scott Sullivan, the WorldCom chief financial officer and his deputy David Myers, are charged with hiding billions of dollars in company expenses and withholding vital information from investors. Mr. Sullivan, who made over $40 million from WorldCom stock, was released on a $10 million bond.

"It was staged for the maximum possible exposure to show that the administration is serious about it," said Rick Malone, a stock broker and financial advisor in suburban Washington. "And I think they are. You're going to see a great number of these kinds of arrests over the next year or so. And you're going to see it right on TV. And rightfully so. There have been a number of folks who have been crooked either through outright fraud or theft or from pushing the envelope too far. And a lot of these people are going to go to jail."

Last week the Justice Department filed criminal charges against three executives of the failed Adelphia cable television company, alleging that they used corporate money for their personal benefit.

Stockbroker Malone says this wave of corporate fraud and the ensuing loss of confidence in U.S. financial markets could persist for several more months.

"It all goes back to stock options and human greed and the egregious use of stock options, which caused people to basically do whatever they could do make as quickly as possible a hundred million dollars," he said. "And it is also the effect of the greatest bubble in the history of the world, [the dot com, tech bubble] bursting. When great bubbles in the past have burst you've seen exactly the same sort of thing occur: all kinds of accounting irregularities have been uncovered, scandals have hit the press, and it takes a long time to work their way through."

No charges have yet been brought against executives of Enron, an energy trading company that collapsed in bankruptcy in November of last year. Criminal charges in that complicated case are expected.

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