The federal judge overseeing the WorldCom bankruptcy case approved a Justice Department request Monday to allow the appointment of an independent examiner to investigate for mismanagement, irregularities and fraud.
U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan granted the request, filed by the office of U.S. Trustee Carolyn Schwartz, after approving $2 billion in financing to keep WorldCom operating as it reorganizes its finances. The examiner would have the power to request documents detailing the company's transactions. WorldCom has agreed with the request, according to court documents.
"We're going to get a guy who's disinterested and on the job and off we go,'' said John Byrnes, a lawyer with the U.S. Trustee's office, said after the hearing.
The Justice Department has also opened a criminal investigation into the downfall of WorldCom. The results of the investigation would only be made public if the government brings charges against the company. Such charges could take months or years.
The Securities and Exchange Commission, citing "accounting improprieties of unprecedented magnitude,'' last month filed civil fraud charges against WorldCom, a day after the company disclosed a nearly $4 billion hole in its books. The SEC is continuing its civil investigation of the company and the Justice Department is pursuing a criminal inquiry. Attorney General John Ashcroft said an independent examiner "will provide transparency to the process and enhance accountability.''
"In turn this should increase public confidence in the conduct of the case and help preserve value and protect the creditors and shareholders, including small creditors and those whose pension funds are invested in WorldCom,'' he said.
An examiner, who would be accountable to the court and not the creditors' committee, was appointed in the Enron case to investigate the energy-trading company's collapse. An examiner can turn over relevant material to the Justice Department if this person discovers activities by company executives believed to warrant investigation. Clinton, Miss.-based WorldCom admitted June 25 that it falsely accounted for $3.85 billion in expenses, which inflated profits. That day, it fired chief financial officer Scott Sullivan, who was subsequently accused by the company's auditor, Arthur Andersen, of withholding crucial information about WorldCom's bookkeeping.
WorldCom's stock price traded as high as $64.50 in June 1999. However, shares of WorldCom and other telecommunications companies have slid with the dot-com bubble burst and other market forces that caused an industrywide implosion.