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CNN Live Today

WorldCom Serves Up Biggest Bankruptcy in U.S. History

Aired July 22, 2002 - 13:06   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: The business world awoke today to the biggest bankruptcy in United States history. We have been talking about it all morning. WorldCom crashed amid another accounting scandal. It is America's biggest handler of Internet data, and the second largest long distance carrier.

CNN's Allan Chernoff joins us now from New York to tell us what it all means, and it means a heck of a lot -- Allan.

ALLAN CHERNOFF, CNN FINANCIAL CORRESPONDENT: Kyra, it means that WorldCom is getting punished for its accounting scandal. There is no question about that. The $3.9 billion cooking of the books that led to a loss of confidence, vendors were demanding payment, early payment from WorldCom, cash reserves were dwindling. The company, essentially, had no choice. Now, the CEO of the company, John Sidgmore, told press conference this morning that he hopes the company will be able to emerge within about nine months from bankruptcy, which would be relatively quick.

(BEGIN VIDEO CLIP)

JOHN SIDGMORE, CEO, WORLDCOM: It's not clear how long this reorganization process will last. And, of course, it's my hope that it will be fairly brief, but we do expect it to last at least through the first quarter of next year, and we plan on using this time under reorganization to regain our company's strength, focus, and our industry leadership.

(END VIDEO CLIP)

CHERNOFF: Now, service to customers should continue uninterrupted. It is this morning. WorldCom says it has not lost any major corporate customers, and there have been no major complaints among consumers.

Now, of course, the whole point of being in bankruptcy protection means that you're protected from your creditors. You can continue to operate. So, again, this shouldn't mean any crisis for consumers, particularly people who have MCI long distance.

Now, the bankruptcy court proceedings are scheduled to get underway in about 50 minutes here in New York City, and that will be exactly where WorldCom will learn from the bankruptcy judge the entire process they will have to go through in terms of reorganizing the company -- Kyra.

PHILLIPS: Allan, could it get any worse for WorldCom with regard to cooking the books? I mean, can investigators still get in there and find other problems, uncover more cooking of the books?

CHERNOFF: Well, good question. Actually, WorldCom is conducting an internal investigation, and it's being led by the former head of enforcement of the Securities and Exchange Commission. WorldCom has already acknowledged that there was some more irregular accounting for years prior to last year. Thus far, that 3.9 billion is just for last year and the first quarter of this year. We don't know exactly how much just yet. The CEO said that won't be known until the investigation is finished, and also until the company's new auditor, KPMG, finishes its review of the company's books. Unlikely to happen before the end of the year -- Kyra.

PHILLIPS: Allan Chernoff. Thank you.

President Bush used the WorldCom bankruptcy to drive home his message about corporate responsibility.

CNN White House Correspondent Suzanne Malveaux is traveling with the president. She joins us once again from Argonne, Illinois -- hi, Suzanne.

SUZANNE MALVEAUX, CNN CORRESPONDENT: Hi, Kyra. The president is touring at Argonne National Laboratories to push for the creation of his Homeland Security Department. But as you mentioned before, of course, he is talking about the economy as well as the stock market.

The administration's strategy has really been two-fold, and they are sticking on point today. The president emphasizing the positive economic indicators, talking about low inflation, low interest rates, and more growth. Also emphasizing that Congress needs to pass this corporate reform legislation, calling for tougher penalties for corporate abuse as well as greater regulations of the accounting industry. All of this trying to boost investor confidence and turn these markets as quickly as possible.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I'm not a stock broker. I am not a stock picker. My attitude on Wall Street is they will buy you or sell you depending upon if it's in their interest, and -- when I was -- when I used to watch the stocks, I was in Midland, Texas, somewhat skeptical about what was taking place on the floors of these exchanges, but I know -- I always knew that you needed to buy on value, the price relative to the earnings of the company needed to be in line with what they considered value, and I believe that values are improving.

I know the economics. The platform for growth is in good shape. Inflation is low, monetary policy is sound, fiscal policy is sound, productivity is up, orders for durable goods are up. We have got the platform for growth, and when the values get there, you will see the market go back up. (END VIDEO CLIP)

MALVEAUX: Now, there have been some calls for the resignation of Treasury Secretary Paul O'Neill. Today, President Bush saying that he stands by O'Neill. He says, Well, when the stock market goes down, he -- of course, he gets the credit, but he will also get the credit when the stock market goes up -- Kyra.

PHILLIPS: Two questions. Real quickly, why haven't we heard a lot from Secretary O'Neill? You bring up a good point.

MALVEAUX: Well, Secretary O'Neill -- of course, it has been the administration's policy that they don't really want to come out and talk about the stock market when it goes up or down. All of this kind of (UNINTELLIGIBLE) from day to day. It is really quite unusual that President Bush has been talking about it for the last couple of weeks, but the administration has felt very strongly that if he at least doesn't address this, that this is only going to make investors even more nervous. So he has been rather outspoken about it, hoping to kind of quell the fears of all these investors who are pulling out.

PHILLIPS: Suzanne, back to Homeland Security then. Let's talk about that, main focus of his speech. These new strategies that he has talked about, this new department. When is it going to get up and running? When are we finally going to see things in motion?

MALVEAUX: Well, he is certainly hoping for a quick turnaround. He is putting a lot of pressure on the Democrats and Republicans to move forward on this legislation. He actually used this event here today and touring the facility here to highlight the need for a Homeland Security Department. This is where they use new technology against terror, and highlighted some of those new technologies here. But he is pushing for the House, which is going to see a version of the bill very similar to the president's. The full House will deal with that later in the week. The Senate has its own version.

He talked about a number of things, including the main goals of this department to control the borders, to respond to emergencies rather quickly, as well as to share intelligence and use this new technology against terror.

But he also talked about the sticking points, those points that have been debated between lawmakers over the last couple of weeks, specifically about the role of the Coast Guard, the INS, as well as customs. He said they all need to be under this one umbrella department. That has been a sticking point among lawmakers for the last couple of weeks. He is saying, get it to my desk as quickly as possible, perhaps before the August recess.

PHILLIPS: Suzanne Malveaux. Thank you.

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