SEC probe sends WorldCom prices down sharply

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Posted 7:58AM on Wednesday, March 13, 2002

CLINTON, Miss. - Shares of WorldCom Inc. dropped markedly Tuesday after the telecommunications giant said the Securities and Exchange Commission requested documents regarding loans and financial practices. In midday trading on the Nasdaq Stock Market, WorldCom shares were down $1.02, or 11 percent, to $7.99. The shares had tumbled as much as 19 percent earlier in the day. WorldCom chief executive Bernie Ebbers, speaking at a Merrill Lynch investors' conference Tuesday in New York, said the company's accounting practices complied with all regulations. WorldCom, the nation's second-biggest long-distance company, said it will furnish all information sought by the SEC. The company also said its policies, practices and procedures are in accordance with the law and it is not aware of information that would give rise to the SEC inquiry. In a letter last week, the SEC told WorldCom the inquiry is "confidential and should not be construed as an indication by the Commission ... that any violation of law has occurred." Drake Johnstone, an analyst with Davenport & Co. in Richmond, Va., said some of the SEC requests are for documents dating back a couple of years, and none deal with revenue recognition and other more serious issues that have plagued Qwest Communications and Global Crossing. The SEC also is seeking documents from Qwest. "In my view, (WorldCom) has nothing to hide," said Johnstone, who listened to Ebbers' remarks Tuesday. "They shouldn't have any problems addressing the inquiries." WorldCom's stock price, which peaked at $64.50 on June 21, 1999, has been battered in recent weeks amid concerns about debt load and Ebbers' ability to repay a $340 million loan from the company to buy WorldCom shares. In an interview with CNBC on Monday, Ebbers said part of the SEC request was related to a loan the company made him. The SEC made 24 requests of WorldCom, including that the company turn over documents for the quarter ended Sept. 30, 2000. The inquiry also focuses on disputed customer bills and sales commissions, loans by WorldCom to officers or directors, customer service contracts and organizational charts and personnel records for former employees. The agency wants documents detailing that quarter's pretax charge associated with domestic and international wholesale accounts that are no longer deemed collectible. The requests were made after WorldCom auditors revealed in February that six to 12 salespeople boosted their commissions by as much as $4 million through unethical practices. The employees, most of whom are based in Arlington, Va., have been suspended without pay, resigned or fired, the company said.