Word: worldcom
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Even though WorldCom's new management, led by Sidgmore, has come forward with the bad news, stock analysts are skeptical about whether they have the full story. WorldCom's "line cost" category is a big bucket, says analyst Susan Kalla of Friedman, Billings, Ramsey. "People knowledgeable about WorldCom say they also capitalized expenses related to software development, maintenance and labor." She suspects that some other telecoms have been just as loosey-goosey with their numbers...
...WorldCom's woes are hardly new. Indeed, part of the shock flows from investors' knowledge that though the company has been in decline for several years, it still managed to paper over its books. When the Internet bubble burst early in 2000, it took down many of WorldCom's biggest customers. The slide accelerated after regulators blocked the firm's $129 billion acquisition of Sprint in July 2000. In March the SEC launched a probe into how and why WorldCom had loaned Ebbers $366 million, most of which he ostensibly used to purchase WorldCom shares. The SEC also looked...
Some investigators and stock analysts say they find it difficult to believe that a hands-on CEO like Ebbers--who was tight with Sullivan--didn't know of the accounting tricks at WorldCom. Mississippi attorney general Mike Moore says his office investigated Ebbers when WorldCom was an upstart known as LDDS and found him playing loose with the rules. Ebbers' employees made a series of $200 campaign contributions to a local politician and were illegally reimbursed by the company. In 1995 WorldCom pleaded guilty to a felony charge and paid a $120,000 penalty. Moore says the evidence "showed that...
...upshot of the whole WorldCom debacle is that when even simple tricks go undetected, there is no saying where it all ends, and that's what investors are coming to understand. They're voting with their feet. Those losing faith include company insiders, who are in the best position to see how firms are managed. Since last September, insiders have sold $66 billion more of their employers' stock than they have bought (all of it legally and publicly disclosed). Insider purchases have all but dried up, according to research firm TrimTabs. A net $10 billion was withdrawn from U.S. stock...
...When WorldCom became the latest big stock to blow up, I called my most trusted sources among money managers to ask how an individual investor can avoid buying such a bomb. The most common answer I got startled even an old cynic like me: We can't talk right now; we're too busy trying to unload our WorldCom shares. So don't feel foolish if you have been whacked. A lot of "smart money" has too. And there's plenty you can do to minimize your odds of owning the next disaster. Here...