The second biggest U.S. telecommunications company, WorldCom, is filing for protection from its creditors under the U.S. bankruptcy law. WorldCom's demise was hastened by an accounting scandal that was revealed only one month ago.
By one measure it will be the largest bankruptcy is U.S. history. WorldCom operates globally and employs 85,000 people. It includes the world's biggest Internet network, most of which is based at a facilities near Washington.
Company chief executive John Sidgmore says normal operations will continue among all of the firm's component divisions. He adds there will be no disruption of phone or data service and no immediate job losses.
Bankruptcy will give WorldCom access to up to $2 billion in loans and time to reorganize, while creditors will not be able to seize the company's assets for non-payment of debts.
Bankruptcy comes less than one month after Mr. Sidgmore revealed that the company's former chief financial officer grossly misstated WorldCom's finances for last year. Nearly $4 billion of revenue was improperly stated, as losses were presented as profits. An already sagging stock price plunged on the news, so that WorldCom shares today are worth less than ten cents.
At their high point in 1999, WorldCom shares were selling for more than $64.
Mr. Sidgmore and other WorldCom executives were called before a Congressional panel but the company's former chief executive Bernard Ebbers and the former chief financial officer refused to testify.
The WorldCom bankruptcy is considerably bigger than the collapse of Enron, the energy trading company which was similarly involved in financial fraud. Largely because of what happened at Enron and WorldCom and the culpability of the Andersen accounting firm, which audited both companies, Congress is rushing to approve legislation that will increase oversight and toughen penalties for such corporate mideeds.
Mr. Sidgmore, the WorldCom CEO, says the company may sell some of its foreign operations but will hold on to UUNET, the division that operates its Internet backbone and the MCI long distance operation, which is the second biggest U.S. telephone company.