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CNN Live Today

Interview with Scott Woolley

Aired July 08, 2002 - 13:31   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: Well, as we keep an eye on the WorldCom hearing on Capitol Hill, we are getting details on what led up to the telecom's financial troubles. This week's issue of "Forbes" magazine focuses on warning signs more than a year ago.

Associate editor Scott Woolley, we are going to bring him back, he joins us once again from New York -- Hi, Scott.

SCOTT WOOLLEY, ASSOCIATE EDITOR, "FORBES": Hi.

PHILLIPS: We meet again. Let's talk about the article that was published, and lay out some of the details here. Some of these warning signs, specifically that you wrote about in this article, "Bad Boys."

WOOLLEY: Sure. Well, there had been a number of lawsuits filed against WorldCom over the year -- over the past year, including one in Mississippi that really laid out a whole litany of accounting misdeeds that had -- you know, citing former employees, former customers. So that suit was ultimately dismissed by a Mississippi judge in WorldCom's hometown. But certainly there have been these accusations of accounting misdeeds floating around for at least a year.

PHILLIPS: All right. Let's talk about pivotal players, OK? Let's begin with Scott Sullivan, WorldCom's former chief financial officer, expected to take the Fifth. Let's lay out his background, and how he plays into the center of this controversy.

WOOLLEY: Sure. Well, he was always sort of a wunderkind on Wall Street. I mean, he is only 40 right now, and he was really sort of the financial mastermind behind the building of WorldCom. I mean, he orchestrated the financing of all these multi-billion dollar acquisitions that built WorldCom. So for a while, he was seen as this real genius, and only recently has his choice to mis-book $3.8 billion in expenses really sort of ruined that reputation.

PHILLIPS: Bernard Ebbers, former chief executive. That's talk about him.

WOOLLEY: Sure. I mean, I think the real question is, did he know or did he not know about the way Sullivan was accounting for some of these expenses. I mean, it's no excuse either way, that you were paying so little attention that you were unaware of these $3.8 billion in accounting issues. But, he was always known for letting Sullivan run the financial side, and he kept investing in the stock, so one of the mysteries is how much did Ebbers know.

PHILLIPS: Well, I was also reading that Ebbers was the one that proposed cutting internal audit staff -- the internal audit staff, right?

WOOLLEY: Yes. I mean, he was sort of a notorious penny pincher. You know, forcing executives to stay two to a motel room. Worrying about how much money they were spending on coffee. So, he was known for his penny pinching. The fact that he wanted to pinch pennies on internal auditing in a company that had for years and years had major accounting issues, is more than a little suspicious.

PHILLIPS: Yes, definitely. David Meyers, former comptroller. He has agreed to testify, hasn't he?

WOOLLEY: Yes. And there is a question. I mean, some of these -- and Cynthia Cooper is another member of the accounting staff...

PHILLIPS: Oh, we can't forget her.

WOOLLEY: ... that investigators have lined up some of them to cooperate in a criminal trial, and so there is a -- that is some of the reason why we are not going to see all of these people at the House hearing today.

But certainly, there's no question that there are going to be some of these lower level accounting executives who come up, much like Sherron Watkins did in the Enron trial, and sort of spilled the beans.

PHILLIPS: Let's talk about Cynthia Cooper again. She is the one that uncovered the disguising of expenses as profits. There was a lot of focus on her not long ago, of course.

WOOLLEY: Yes, and I mean, it is actually surprisingly easy to move this $3.8 billion around. Since they didn't eliminate it, they just accounted for it in a different way, as a capitol expense. And so, she was sort of on the inside, and the first person to question why they were capitalizing these expenses this way.

And you know, you can make a very contorted argument for it, but she was the first one to really say, hey, the accounting rules just don't let you do this.

PHILLIPS: Now we've got to talk about Jack Grubman, the Salomon Smith Barney analyst. Big player here.

WOOLLEY: Sure. You know, made $20 million a year, back in the height of the telecom boom. Was the most important influential telecom analyst on Wall Street for years and years, very plugged into these companies. Orchestrated and indeed suggested a lot of the major mergers that went through, and in WorldCom's case, turned out very badly. So he's going to take a lot of flak today. There is no question about that. I mean, he really is this poster child for the ethical problems that Wall Street has had over the past four years.

PHILLIPS: Well, he is the one who attended the WorldCom board meetings, he is the one that -- he was calling investors, telling them to sell, correct?

WOOLLEY: Yes. And I mean, he finally got around to issuing a sell recommendation on WorldCom stock a couple days before these accounting problems were issued. I mean -- but he was -- there was no bigger tout on this stock than Jack Grubman. And he was very tied in, and because he was so tied in, people assumed he knew what he was talking about, and that he had a reason for believing in this company. Ultimately it was proven that he didn't.

PHILLIPS: Now, you think that it will be important to go back and look at how WorldCom evolved? Kind of start from the beginning, and lay it all out from there? Obviously, that is going to take a lot of time, but let's talk about how important that is to proving a case here.

WOOLLEY: Certainly. This was a company that was built on acquisitions, and each acquisition was bigger than the next, and that buried what had happened in the previous acquisition. So nobody really worried about how, with the previous acquisition, how that had done, because there was always a new, bigger acquisition to worry about.

So the way this company was built really allowed accounting problems to fester for years and years, and in the peculiarities of its corporate history, really allowed a lot of these problems to build up.

PHILLIPS: All right. "Forbes" magazine associate editor Scott Woolley. We are going to ask you to stick around, is that OK?

WOOLLEY: Sure.

PHILLIPS: We are going to continue to monitor this hearing, bring you back in, and talk about what develops. Good deal?

WOOLLEY: Great.

PHILLIPS: Scott, thank you.

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