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American Morning

Interview with Andy Serwer

Aired June 26, 2002 - 07:08   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL HEMMER, CNN ANCHOR: More now on that developing story after the close yesterday. Just when investors thought things could not get much worse for the markets, fasten your seat belts. Word today of another huge scandal in the business world, this one at the already embattled telecom giant, WorldCom.

Andy Serwer of "Fortune" magazine this morning with us with what some are saying are absolutely gory details. What happens here? You report that you have $4 billion that you said were in profits, and now you are saying, no, we disguised that the entire time.

ANDY SERWER, "FORTUNE" MAGAZINE: Right. In revenues, Bill, actually yes. And basically, the company is in some very serious financial trouble right now. Its future is in jeopardy in terms of it as an ongoing company. The stock, which reached a peak of $63 a couple of years ago, is now down below $1. It was trading at 80 cents last night. In pre-market trading, it is now down to 18 cents.

HEMMER: Wow!

SERWER: And bankruptcy is a real possibility, which is truly remarkable, Bill, because this is the nation's second largest telecom company. Of course, it owns MCI, and tens and thousands of Americans are impacted. Jobs are lost. Investors have lost billions and billions of dollars.

HEMMER: Tell me this: You have SEC oversight here. You have Arthur Andersen apparently auditing the company and perhaps doing that for years. I don't want to get too technical.

SERWER: Yes.

HEMMER: But in layman's terms, can you tell me how in the world something like this can happen?

SERWER: Well, these financial statements have become more and more complex over the past 10 and 5 years especially. The CEO of the company, Scott Sullivan, has left last night. The implications are he is responsible for this improper accounting. It is very easy, as we learned in the Enron situation, to hide, to fudge, to obfuscate these kinds of numbers. There is only so much the board can do and the accountants can do. Still, it is the accountant's job to delve into these statements and try to find these situations. HEMMER: Put this then, Andy, with Enron that you mentioned. Put it with Tyco, Global Crossing, Adelphia Communications, the cable giant out of the Midwest and Tennessee. What does it say to investors right now, who are looking to establish some sort of faith in the market, some sort of trust in the market? And when the open comes today, we can anticipate what?

SERWER: The opening this morning should be terrible, and markets overseas are way down. The futures for the overall market are way down. It is a terrible message to investors right now. They are seeing company after company reporting fudged numbers, shenanigans, accounting malfeasance. It is a very terrible situation. This is the largest accounting fraud perpetrated on the American public so far.

That was the scariest thing in "The New York Times" this morning, Bill. It didn't say "ever." It said "yet," as if to suggest that perhaps there is more to come from corporate America.

HEMMER: It is a wicked premonition; 17,000 layoffs possibly from WorldCom alone.

SERWER: Yes, that's what the company is saying on Friday, that's right. There will be coming an announcement on Friday. And they have already laid off thousands before this. You can see here that's 20 percent or so of the company. And there are investigations from the SEC. The Justice Department is investigating. And of course, the architect of the overall company, Bernie Evers, left the company recently. He is also being investigated.

HEMMER: Just when you wanted faith restored in America, apparently it may not come this way.

SERWER: We are going to have to wait a bit for that, Bill.

HEMMER: Thank you, Andy. You've got it. Thanks for chatting -- Andy Serwer from "Fortune" magazine.

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