Worldcom

The accounting scandal enveloping WorldCom Inc. grew out of a scheme so simple and brazen that top executives for the telecom giant should have known it would eventually collapse of its own weight, experts in corporate finance said yesterday. But the pressure to meet Wall Street's earnings expectations, coupled with a culture of permissiveness among internal and external auditors, may have fed a misguided belief that the improper shifting of $3.8 billion in expenses could be covered long enough for the company to revitalize its slumping earnings.

When President Bush signed the Sarbanes-Oxley Act into law in July 2002, the problems at WorldCom Inc. were fresh on everyone's mind because the telecommunications giant had sought bankruptcy protection just nine days earlier. Nearly three years later, WorldCom's former chief executive has been found guilty of fraud and could face a maximum prison term of 85 years, potentially one of the stiffest sentences yet in a parade of white-collar criminals. But many businesses remain disgruntled about the government's remedy to corporate corruption.

WorldCom, suffering from the rapid erosion of its profits and an accounting scandal that created billions in illusory earnings, submitted the largest bankruptcy filing in U.S. history last night. The bankruptcy is expected to rattle a shaky telecommunications industry, but it is unlikely to immediately affect its customers, including the 20 million users of its MCI long-distance service. The WorldCom filing listed more than $107 billion in assets, far surpassing those of Enron, which filed in December.

After more than a month of courtship, telecommunications giants MCI Communications Corp. and WorldCom Inc. announced yesterday that they have agreed to merge. If the $37 billion merger is approved by shareholders and regulators, it will be the largest in U.S. corporate history."We are excited by the remarkable opportunities this combination makes possible for both companies," WorldCom President and Chief Executive Officer Bernard J. Ebbers said at a Manhattan news conference yesterday after the deal was announced.

WorldCom Inc., the nation's No. 4 long-distance telephone company, launched an unexpected $34.5 billion takeover bid yesterday for MCI Communications Corp. in its march to become one of the globe's dominant telecommunications companies.If successful, the last-minute move for the Washington-based No. 2 long-distance provider would be the largest acquisition in U.S. history; it's about $8 billion more than RJR Nabisco's purchase by Kohlberg, Kravis Roberts & Co. in 1989.The deal could create a telephone giant poised to challenge AT&T Corp.

Two technology industry analysts, concerned about how Digex Inc.'s pending acquisition by WorldCom Inc. will affect shareholders, lowered their Digex ratings yesterday, and the stock of the Beltsville-based Web manager fell 10 percent. Reacting to the changes from "strong buy" to "buy," investors sent the shares down $2.94 to $26.03. Yesterday's decline followed a 15.6 percent drop Friday, when Digex shares finished trading at $29. Earlier Friday, the shares had hit a 52-week low of $24.75.

WorldCom Inc. emerged yesterday the winner in a fierce bidding war to gain control of Digex Inc., the Beltsville company that's considered one of the crown jewels of the emerging Web-hosting industry. The telecommunications giant is paying $6 billion for the prize. WorldCom won control by buying troubled Intermedia Communications Inc., which owns 55 percent of Digex, its most valuable asset. WorldCom, of Clinton, Miss., will pay a premium price of $39 a share, or about $2.9 billion, for Intermedia, of Tampa, Fla. Intermedia shares rose $8.61, or 38 percent, closing at $31.48 on the Nasdaq stock market.

Ciena Corp. stock fell a stunning $16.125 a share yesterday in reaction to the Linthicum telecommunications company's announcement that one of its major customers is delaying orders.The price plunge, which reduced the value of Ciena shares by 28 percent to $42 -- and its market capitalization from $5.8 billion to $4.2 billion, was attributed to WorldCom Inc.'s decision to postpone its deployment of Ciena's capacity-boosting network equipment."It means we have a challenge to fill a gap in the revenue we expected," said Ciena President and Chief Executive Officer Patrick Nettles.

If putting WorldCom Inc.'s head honcho Bernard J. Ebbers in prison for perhaps the rest of his life sends a message to Corporate America to clean up its act, legal experts say the lighter sentence handed down yesterday to his right-hand man, Scott Sullivan, sends another message to wrongdoers: cooperate. Sullivan, WorldCom's chief financial officer under Ebbers until an $11 billion accounting fraud drove the telecom giant into bankruptcy, was sentenced to five years in prison yesterday.

NEW YORK - A federal bankruptcy judge in Manhattan halted AT&T Corp.'s lawsuit against WorldCom Inc. yesterday, ruling that allowing the suit to proceed would interfere with WorldCom's reorganization. U.S. Bankruptcy Judge Arthur J. Gonzalez froze the racketeering lawsuit that AT&T, the biggest U.S. long-distance phone company, filed against WorldCom last month in U.S. District Court in Alexandria, Va. The suit accused WorldCom of fraudulently routing calls to avoid paying network-access fees.