U.S. stocks plunged -- but recovered by day's end -- after the disclosure by the long-distance and Internet services company, the latest revelation of how business ethics were trashed during the technology boom of the late 1990s.
"We've had too many cases of people abusing their responsibilities, and people just need to know that the SEC [Securities and Exchange Commission] is on it," Bush said. The agency was investigating WorldCom before the announcement late Tuesday by the Clinton, Miss.-based company.
SEC Chairman Harvey L. Pitt said late yesterday that his agency had filed fraud charges against WorldCom in U.S. District Court in New York. He said the filing was intended in part to prevent the company from destroying documents or making payouts to WorldCom executives past or present while the SEC continues investigating.
Pitt said the action against WorldCom was "an attempt to restore the understandably lost credibility that people have in what they are hearing and reading." He did not elaborate.
Congressional leaders chimed in, talking about jail for any lawbreakers and asking where regulators had been.
Senate Majority Leader Tom Daschle, a South Dakota Democat, said there must be "aggressive enforcement of the law. And if laws were broken, somebody needs to go to jail."
Senate Democrats said the WorldCom revelation underscores the need for the legislation to create the new accounting oversight board and change accounting standards. The Senate Banking Committee last week approved the bill, which is sponsored by the committee chairman, Maryland Democrat Paul S. Sarbanes, and opposed by the Bush administration and Republican leaders in the House of Representatives.
Daschle scheduled Senate debate on the legislation as the first order of business after the Fourth of July recess.
The House voted overwhelmingly yesterday to authorize a 77 percent boost in the SEC's budget, raising it to $776 million -- substantially more than the Bush administration had requested -- for the fiscal year beginning Oct. 1. "It is absolutely vital for the SEC to have the necessary resources to protect investors," said Republican Rep. Michael G. Oxley of Ohio, chairman of the House Financial Services Committee.
Meanwhile, Federal Communications Commission Chairman Michael Powell said his agency was "closely monitoring the situation and doing everything possible" to safeguard the nation's telecommunications.
In disclosing the accounting scandal, WorldCom said it plans to start laying off 17,000 workers -- about 20 percent of its global work force -- tomorrow. The company also fired chief financial officer Scott Sullivan on Tuesday night.
Analysts warned that WorldCom, owner of the MCI long-distance business and UUNet Inc., one of the world's biggest Internet "backbone" networks, could declare bankruptcy within a week, joining Enron as one of the most spectacular failures of the "New Economy."
In a taped Webcast last night, WorldCom Chief Executive John Sidgmore made no mention of a possible bankruptcy filing but called the accounting disclosure "a shock" and "an undeniable setback" for the beleaguered company that he's run for less than two months. Sidgmore said he met Tuesday with WorldCom's key lenders in New York and that the company would continue on a plan to cut costs and become leaner.
"This has been a very tough week for WorldCom, there's no doubt about it," said Sidgmore, who replaced ousted WorldCom founder Bernie Ebbers in April.
With more than $100 billion in assets reported at the end of March, a WorldCom bankruptcy would be twice as large as Enron's record-setting slide into Chapter 11 last fall and four times as big as Global Crossing Ltd.'s in January.
Alec P. Ostrow, a partner in bankruptcy law firm Salomon, Green & Ostrow in New York, said WorldCom likely spent yesterday preparing a bankruptcy filing that could be used to fend off anxious bankers.
"What they've done is probably grounds for one or more of their lenders to call their loans" and demand immediate payment, leaving the company without money to operate, said Ostrow. "In order to avoid an immediate shutdown, leaving lots of customers in the lurch, they'd have to file for bankruptcy," he said.