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American Morning
Interview with Andy Serwer
Aired June 26, 2002 - 09:06 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.
DARYN KAGAN, CNN ANCHOR: We're about 24 minutes from the opening bell on Wall Street, and all eyes will be on Wall Street today to see the effect of WorldCom scandal. This is the latest to rock Wall Street, and we have Andy Serwer, here, from "Fortune" magazine to look at what is WorldCom, but some calling "WorldCon."
ANDY SERWER, FORTUNE MAGAZINE: Yes. I mean, it's really a remarkable situation, Daryn. You can see there, in the screen, the futures are way, way down ...
KAGAN: On the bottom right-hand side. Oh, yes.
SERWER: Yes. That is because of this really remarkable situation. WorldCom acknowledging, last night, that it misstated it's financial reports by $3.8 billion over the last ...
KAGAN: Just say that number one more time. We're talking ...
SERWER: $3.8 billion dollars. That's the largest improper accounting ever in the history of the United States.
KAGAN: That's a nice way of putting it, improper accounting.
SERWER: Fraud. Let's call it fraud.
KAGAN. Yes. Now, of course now, when Enron came out, there were some characters that suddenly America got to know like Ken Lay and Jeffrey Skilling.
SERWER: Right.
KAGAN: Who is going to be the name that comes out of WorldCom?
SERWER: Well, Bernie Edwards was the man who put WorldCom together.
KAGAN: He's gone, though.
SERWER: He has left the company in April. He is certainly going to be under scrutiny for a while because he is being investigated. But the new person today, the chief financial officer of the company, Scott Sullivan, he was fired last night. We were digging into the company's proxy statement just a few minutes ago here ...
KAGAN: Which is, for people this as closely as you do, a proxy statement is what?
SERWER: It's a notification for the company's annual meeting. It also contains information about the company's chief officers - how much they get paid. We were looking at Scott Sullivan's compensation package. Over the past couple of years, some very interesting details here.
KAGAN: OK.
SERWER: He was due a $10 million bonus, but he had to stay through September of 2002 to receive it.
KAGAN: Almost there.
SERWER: Almost there, but two months short of getting that $10 million.
KAGAN: Gone.
SERWER: He was also going to get a $6 million bonus this year. That's also gone. His 619,000 options are worthless because the strike price, the price where they would be in the money or worth something, was $15. The stock is now at 20 cents. He made about $700,000 dollars last year. So this is not a guy who took a lot of money out of this company. He was due some $26 million this year, but he ain't going to see any of it.
The stock traded as high as the low 60s, there, in June of '99. It is now at 18 cents, a company whose market value was $115 billion, it is now a billion dollars and slipping lower and lower, and this has tremendous implications, Daryn, for investors, for employees, and for consumers because this is the second-biggest telephone company in the United States. The own MCI, of course. Service won't be disrupted, at least not now. But it's just a huge dilemma, and it really undermines confidence in the stock market.
KAGAN: And we will see how that plays out. About 22, 21 minutes from now. Opening bell on Wall Street.
SERWER: And it doesn't look good.
KAGAN: We will be watching it. Andy Serwer. Thanks for explaining it.
SERWER: Thanks, Daryn.
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