The former WorldCom executives, who today refused to answer questions about the company's alleged accounting fraud, became the brunt of angry politicians' frustration with the recent spate of scandal in corporate America.
Former WorldCom Inc. CEO Bernard Ebbers, who today refused to answer questions about the companys alleged mammoth accounting fraud, became the brunt of angry politicians frustration with the recent spate of scandal in corporate America. Lawmakers called for remedies ranging from criminal indictments of company executives to the resignation of Securities and Exchange Commission Chairman Harvey Pitt.
"What I would like to know -- and its a simple question -- is do you sleep well at night?" Rep. Gary Ackerman, D-N.Y., asked both Ebbers and recently fired WorldCom CFO Scott Sullivan, echoing a frustration expressed by many on the committee this afternoon.
Both Ebbers and Sullivan, who were subpoenaed by the House Committee on Financial Services, invoked the 5th Amendment right against self-incrimination and declined to answer questions from lawmakers, several of whom suggested that executives found guilty of fraud serve time in prison.
"The betrayal to the spirit of the Fourth of July by senior WorldCom managers is so immense that it could cost tens of thousands of workers and average citizens their livelihood and life savings," said committee chairman Michael Oxley, R-Ohio. "The consequences to this sort of criminal activity, should it be proved, should be severe, and that may mean time in federal prison."
Before invoking the 5th Amendment, Ebbers made a brief statement in his own defense, asserting that WorldCom continues to be a valuable company. "I do not believe I have anything to hide," said Ebbers, who was forced out of the Clinton, Miss. company in April. "I believe that no one will conclude that I engaged in criminal conduct."
Some committee members argued that Ebbers statement constituted a waiver of his 5th Amendment right and consequently required him to answer the committees question or else be held in contempt. The matter was not resolved during the hearing, and Ebbers persisted in invoking the 5th Amendment whenever questioned. Committee Chairman Michael Oxley, R-Ohio, early in the afternoon granted Ebbers permission to leave the hearing, only to ask him to stay after committee members protested loudly. Oxley said the committees counsel would review the matter of contempt, and he reserved the right to recall Ebbers to answer members questions.
Ebbers effort to protect himself against self-incrimination did not discourage committee members from lashing out at him and at CEOs more generally, who until very recently were widely lauded in Congress as captains of the late economic boom.
"Earnings manipulation has become all too common a practice among our publicly traded companies, both large and small," said Rep. John LaFalce, D-N.Y. "The simplicity and audacity of the deception at WorldCom provides ample evidence of a profound change in culture within our largest corporations."
How much of the lawmakers criticism will translate from political showmanship to actual reform remains to be seen. In addition to demanding the indictment of dishonest executives and the resignation of Pitt, committee members called for creating a new federal agency to oversee investment and accounting practices and for enacting new laws to create a more clear-cut separation between the interests of investment banking and research analysis.
Lawmakers grilled former Arthur Andersen auditor Melvin Dick and Salomon Smith Barney analyst Jack Grubman about their failure to detect the alleged accounting fraud. Many were highly critical of the two witnesses vague answers, and they did not attempt to hide their frustration.
"I congratulate you on your ability to evade," Rep. Barney Frank, D-Mass., told Dick after receiving a less-than-satisfactory answer to a question about the responsibility of auditing firms regarding their clients financial statements.
Ackerman, who harshly reprimanded Ebbers and Sullivan, had equally severe words for Dick and Grubman. "You still feel a need to cover up for these guys," Ackerman said to the auditor and the analyst. "Covering up what your company did for them has taken deep root in your soul."
As the hearing wore on into the evening, the committee members admonishments became increasingly severe.
"Ive been sitting here all afternoon . . . and I really have not learned anything new. Asking questions is really a waste of time," Rep. Michael Capuano, D-Mass., said to the four witnesses after sitting through five and a half hours of testimony. "Youve done the American dream. Youve taken every penny you can take, and youre going to keep it. . . . But gentlemen, I think you better watch your backs. Your futures are in jeopardy."
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