Scrambling to respond to the mammoth accounting scandal unfolding at WorldCom Inc., a congressional committee demanded to hear testimony from top current and former executives of the telecommunications giant, as well as a stock analyst who had long served as the company's most vocal booster.
The House Financial Services Committee's action came as President Bush and other administration officials fretted publicly Thursday that the recent spate of corporate accounting scandals could pose a threat to the nation's economy.
"I'm concerned about the economic impact of the fact that there are some corporate leaders who haven't upheld their responsibility," Bush told reporters while attending a global economic summit in Canada.
Washington's legislative and regulatory machinery has been clanking into gear since WorldCom stunned Wall Street by disclosing that it had used improper accounting techniques to grossly overstate profits and sweep $3.8 billion in expenses under the rug.
Shortly after the president called for a full investigation of the episode, the Securities and Exchange Commission filed civil securities-fraud accusations Wednesday against WorldCom, the financially beleaguered parent of long-distance provider MCI.
The SEC, which was criticized for responding too slowly to the fiasco involving Enron Corp. and its accountant, Arthur Andersen, says it is determined to act aggressively to ensure that the public's faith in U.S. financial markets doesn't erode further.
"We're in a period where investor confidence has been shaken," SEC Chairman Harvey L. Pitt said Thursday. In the case of WorldCom's disclosure, Pitt added: "We learned about some of the fraudulent activities and were in court within hours. That is unprecedented for the SEC."
Pitt made his comments as institutional investors -- many of which had already seen their portfolios socked by the financial meltdown that followed discovery of Enron's phony accounting -- began to tote up their expected WorldCom losses.
During its late-1990s heyday, the Mississippi company sold tens of billions of dollars in bonds to pension plans, insurance companies, bond mutual funds and others as it pursued an aggressive growth-through- acquisition strategy.
Now, in the face of widespread speculation that the company will file for bankruptcy, WorldCom's stock is valued at less than a dollar a share, and its bonds are trading at pennies on the dollar.
General Electric Co. announced Thursday that it will suffer a $110 million loss on its WorldCom bond holdings. The California Public Employees Retirement System, also known as Calpers, said its loss from WorldCom investments would likely total $565 million. And New York's state retirement system estimated that it lost $300 million investing in WorldCom stocks and bonds.
"The WorldCom news dramatically underscores the need for legislative and regulatory reform," said Rep. Michael G. Oxley, the Ohio Republican who chairs the House Financial Services Committee.
Oxley's committee, which has jurisdiction over accounting-related issues, ordered WorldCom's co-founder and former chief executive, Bernard J. Ebbers, to testify before the committee on July 8.
The panel also subpoenaed John W. Sidgmore, who assumed CEO chores after Ebbers was ousted in April because of questionable loans that he had accepted from the company.
Also called to appear is Scott D. Sullivan, who had long enjoyed a reputation as a financial whiz kid but was fired from his job as WorldCom's chief financial officer this week after directors learned of the accounting tricks the company had been employing for more than a year.
What is unusual about the upcoming WorldCom hearings is the committee's decision to subpoena Jack Grubman, a Salomon Smith Barney investment analyst who served as one of WorldCom's most vocal Wall Street cheerleaders.
Grubman, whose glowing recommendations helped drive WorldCom shares to a peak of nearly $62 in 1999, maintained a positive stance on WorldCom and other telecom players well after the once-highflying industry's fortunes began plunging two years ago.
Critics have said that Grubman's enthusiastic "buy" recommendations were designed to help Salomon Smith Barney win investment-banking business from telecom companies, sometimes at the expense of investors taking his advice.
Solomon stood by Grubman Thursday, saying he "continues to be an important analyst at our firm."
James P. Miller is a reporter for the Chicago Tribune.