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Former SEC Chair Discusses WorldCom

Aired July 08, 2002 - 12:02   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.
KYRA PHILLIPS, CNN ANCHOR: We begin this hour with the latest attempt by Congress to peek inside the boardrooms of corporate America. It was June 25 when the telecommunications giant WorldCom announced the improper classification of almost $4 billion in expenses. One hour from now, the House Financial Services Committee will hold a public hearing in which two of WorldCom’s former top executives are expected the plead the Fifth.

Tomorrow, President Bush is scheduled to give a speech on Wall Street in which he’s expected to call for jail time for corporate bosses who deliberately overstate earnings.

CNN’s Louise Schiavone is following events on Capitol Hill and joins us now with a preview of today’s showdown.

Hi -- Louise.

LOUISE SCHIAVONE, CNN CORRESPONDENT: Hello, Kyra.

As you know, these hearings are spurred by calls for Congress to act. Investors are outraged. Confidence in corporate America (AUDIO GAP) so WorldCom executives will be called before that House Financial Services Committee and be asked to explain what happened to $4 billion, $4 billion that were misclassified on WorldCom balance sheets. And we’ll see the all too familiar parade of witnesses walk into a congressional hearing room, raise their hand, take an oath. Who will speak and who will not?

Well, as you noted, we know of at least two members of the WorldCom team who will not be speaking. Among them, Bernard Ebbers. He is the company founder. He founded WorldCom. He is a former CEO. He oversaw $42 billion acquisition of MCI. He was one of the top 25 business managers in 1997. He resigned April 30.

After Bernard Ebbers, Scott Sullivan the former chief financial officer of WorldCom; he was the CFO for advanced telecommunications when WorldCom acquired his company in 1992. He was fired June 25, 2002. He was sued by WorldCom for repayment of $10 million, a $10 million bonus.

And we’re going to hear from John Sidgmore. He is the president and CEO of WorldCom currently. He succeeded Ebbers, and he is the former WorldCom vice chairman and chief operating officer. He is the head of WorldCom now but this is the fourth telecommunications company that he has run. Formerly, he was head of three others including UUNET, which is the Internet backbone provider.

Kyra, what is he going to say? He is going to make the argument to Congress that WorldCom, MCI, UUNET, which is part of WorldCom/MCI, all of them provide very important roles in this economy. The Internet, telecommunications competition, this is what he is going to say to the House Financial Services Committee.

But as I said earlier, Scott Sullivan, Bernard Ebbers expected not to speak and also not expected today is David Myers. He is the former controller of WorldCom. He was to have received a subpoena from the committee, but somehow the committee couldn’t find him. He didn’t get that subpoena served to him, and we don’t expect to see him today -- Kyra.

PHILLIPS: All right, Louise Schiavone thanks so much.

And in about an hour we’ll dip into that live.

Well, as we mentioned, President Bush plans a frontal attack on corporate abuses in America’s financial epicenter, Wall Street.

CNN’s John King joins us now with more on that.

What do we expect -- John.

JOHN KING, CNN SENIOR WHITE HOUSE CORRESPONDENT: Well, Kyra, we expect some tough talk from the president, a lecture, if you will. The president will travel up to Wall Street and lecture corporate America, although he will also say that in his view, most corporate CEOs are good actors and that a few bad actors right now are spoiling the U.S. economy and investor confidence in the markets.

Mr. Bush will work on that speech this afternoon back at the White House. He is returning from a weekend, a holiday weekend at Kennebunkport, Maine. A round of golf with his father, the former president, this morning, Mr. Bush told reporters then that his speech was in pretty good shape. He also said that he thinks people will like it if you have an open mind.

Now the White House says many Democrats and some Republicans here in Washington in its view already have closed their minds to the president’s proposals. Over the weekend, we learned that in addition to some Democrats, now the Republican Senator John McCain of Arizona think perhaps the chairman of the Securities and Exchange Commission Harvey Pitt should step aside. He is a Bush appointee.

The White House says that he is doing a good job, and that most of these accounting problems at WorldCom, at Enron, at other giant companies, yes, they’re being disclosed now, the White House says, but they date back to a time when there was a Democrat, Bill Clinton, in the White House.

Among the proposals the president will make, we are told, is put on the table that any corporate executive who deliberately misleads investors and misleads the public by cooking the books -- by lying about the financial standing of the company -- could go to jail for that. Now, the government would have to prove that it was deliberate under the Bush proposal.

We also are told the president will call for quicker disclosure whenever a CEO or a corporate director or a high company insider sells a significant share of stock, that that would have to be disclosed much more quickly so that the government and other investors could get a clue as to what top government officials are doing.

Now, this speech is a policy debate here in Washington, but also a political debate. This is a midterm election year. When the president goes up to New York tomorrow, we are told the liberal group will release an advertisement here in Washington and up in New York saying Mr. Bush, because of his own past dealings in the business community, is not qualified, if you will, to lecture the industry.

So both a policy and a political debate, Mr. Bush will put the finishing touches on that speech here today and deliver it right up on Wall Street tomorrow -- Kyra.

PHILLIPS: All right, we’ll be talking about it a lot tomorrow. John King, thank you.

Heading up the Securities and Exchange Commission is a job that ordinarily exists below most Americans’ radar screens. That’s unless and until some scandal brings the glare of publicity. Well, there’s no shortage of those nowadays, and few people know what embattled SEC boss Harvey Pitt is up against like former SEC boss Richard Breeden. He joins us now from New York.

Hi -- Richard.

RICHARD BREEDEN, FORMER SEC CHAIRMAN: Hi, Kyra.

PHILLIPS: No doubt a tough time. Are you glad you’re not in this position right now?

BREEDEN: I’m very happy that someone else has to do all the hard work, Kyra.

PHILLIPS: All right, Daschle and McCain both are calling for the resignation of Harvey Pitt. Is this ludicrous? Is this just politicizing a situation, or does it have credence?

BREEDEN: Well, I’m not sure whether it’s ludicrous. It certainly is sad, and it’s the wrong thing to suggest. We’re seeing an unprecedented series of scandals in corporate America, and it’s obvious now that we have some serious problems in our accounting and disclosure system, and attacking the SEC and trying to dismember it is hardly the best way to start.

I would suggest most strongly that Sen. Daschle and Sen. McCain, if they truly have an interest in making America’s accounting and disclosure system better, then they should work with Chairman Pitt, not try and attack him.

PHILLIPS: So do you think that these senators truly understand Pitt’s position, and if not, what is it they’re just not getting? BREEDEN: Well, no I don’t think they do. I think that they’re playing the Washington political game here, and it’s a high stakes game because the American public is disgusted with what it’s seeing. And I’m sure that President Bush and Harvey Pitt are too.

The question is how do you fix these things? What went wrong, and how do you make sure that we do enough to satisfy the public’s concern, but we don’t do too much and damage a system that is a very delicate balancing of interests?

So this is not an occasion to start firing cannons into the walls of the SEC. This is a time to get the best brains in the country together and try and reason through, Republicans and Democrats working together. What’s the best solution?

PHILLIPS: Richard, Sen. McCain is saying that Harvey Pitt had too many cozy relationships with U.S. corporations. Do you think that’s true? And, in a position like Harvey Pitt’s, does he need to have somewhat of a cozy relationship with U.S. corporations?

BREEDEN: Well, I have great respect for Sen. McCain, and for Sen. Daschle as well, and I had the good fortune when I was at the SEC to have my good friend Chris Dodd, Sen. Dodd, and Ed Markey, and John Dingle to work with. The Democrats at that time controlled the Congress, and we passed a number of pieces of legislation. I think they were balanced and careful pieces of law, and the Republicans and Democrats worked together and didn’t introduce partisanship.

Sen. McCain has had a sensitivity to perceptions, perhaps dating back to his own financial scandals in the Keating Five days, and I accept his motivations -- but the answer is just flat wrong. In fact, one of the things that he cited in his article in the "Times" this morning, of saying that we ought to do -- of making CEOs being accountable for financial reporting, Harvey Pitt has already done. It’s not just a proposal. He’s put it into effect.

So I think we need to tone down the rhetoric and quit clawing at each other and try and figure out what’s the matter with this system. Where did these abuses come from, and how can we most quickly put in place a better system that Americans that invest know protects their interest?

PHILLIPS: How do you think Harvey Pitt is handling the scandalous situations? What are his strong points right now?

BREEDEN: Well, you know Harvey has taken some criticism because he’s an experiences securities lawyer. That would be like saying that Colin Powell would be criticized if he was appointed secretary of defense because he’d been in the Army.

Most SEC chairmen, almost without exception, have been securities lawyers and have practiced in this area. And frankly, I’m worried that the attacks on Harvey, which I think are just plain wrong and off base, because of his past securities practice, will deter other practitioners in the future from either being willing to serve as chairman or to serve on the senior staff of the commission. Of course, the SEC has people who are experienced in Wall Street. You have to have people with that kind of background, but I think the chairman has been very careful to try and separate himself from cases where he had a personal involvement in the past.

PHILLIPS: Richard, real quickly, a couple weeks ago -- I want to say maybe it was a week or two ago -- on the radio Harvey Pitt was calling for more investigators, more SEC investigators, saying that this could be very helpful in what’s happening right now. Could you just kind of briefly describe that position and if, indeed, you think that is part of the solution here?

BREEDEN: Yes. Well, if the Senate would like to do something, the first thing they should do is confirm the four SEC nominees who have been sitting around waiting for confirmation, two of them for at least a year, to give some more commissioners at the commissioner level with Chairman Pitt, to help him out.

And the second thing that they could do very quickly would be to increase the resources of the commission, which have been systematically underfunded for a generation or so. And nobody wants the SEC to be too strong and too powerful, because it will look into too many corners.

But I think America needs to see the strongest possible SEC, and Pitt has been correctly calling for more resources in numbers, and also funding the pay parity that’s quite essential to bring SEC staff up to the pay levels that other government agencies already received to stop the brain drain we’ve had there.

PHILLIPS: Former SEC boss Richard Breeden, always a pleasure. Thanks Richard for your insight.

BREEDEN: You’re welcome.

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