The Regents - University of California | Office of The President

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that the company voluntarily produce documents including: its third quarter 2000
pre-tax charge associated with wholesale accounts; disputed customer bills and
sales commissions; its accounting policies for goodwill and implementation of
FAS 142; loans by WorldCom to officers or directors; WorldCom's tracking and
review of analysts' earnings estimates. WorldCom stated “it is not aware of any
information that would give rise to the Commission's inquiry.”
112. In April, the Company laid off 3,700 workers and Ebbers resigned.
The Press Release announcing these events provide no reasons for either.
A. Internal Audit and Audit Committee Meetings
113. During May of 2002, the Vice President of Internal Audit, Cynthia
Cooper, one of Time magazine’s “Persons of the Year” in 2002, began an
investigation of WorldCom’s accounting for capital expenditures and capital
accounts. According to WorldCom’s own July 8, 2002 filing with the SEC, she
determined that “a number of questionable transfers had been made into the
Company’s capital accounts during 2001 and the first quarter of 2002.” “The
transfers involved a portion of the costs associated with network services and
facilities provided by third parties, designated ‘line costs’ by the Company, that
previously had been treated as expenses in the Company’s financial statements.”
114. She then discussed her findings with Scott Sullivan, the Chief
Financial Officer, and David Myers, Senior Vice President and Controller.
Sullivan asked her to delay her review until the third quarter, but she refused.
Sullivan represented to Cooper that the “line cost transfers began in the third
quarter of 2001, and that previously these costs had been expensed.” See July 8,
2002 Revised Statement Pursuant to Section 21(a)(1) of the Securities Exchange
Act, page 2 attached as Exhibit “A.”
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COMPLAINT