The Regents - University of California | Office of The President

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
115. Cooper continued her investigation and brought her findings to the
Chairman of the Audit Committee of the Board of Directors, Max Bobbitt. The
Chairman did not believe that the matter needed to be brought to the attention of
the Audit Committee.
116. On June 13, 2002, Sullivan represented to the CEO of the company,
John Sigmore, that “SG&A [selling, general and administrative] and capital
expenditure reduction measures planned for the second quarter of 2002 may not
have the desired impact on net income due to writedowns that were planned for
that quarter.” Id., page 3
117. On June 14, 2002, Sullivan, who was also a director of WorldCom,
represented at the regularly scheduled board meeting:
[T]he financial report for second quarter 2002 would be
complex, including the previously announced $15-$20
billion goodwill impairment charge, severance charges,
and charges for cancelled capital projects, discontinued
operations, and other items.
Ibid. “Mr. Sullivan indicated that he would continue to examine the Company’s
line cost commitments.” Ibid.
118. On June 17 or 18, 2002, Myers “indicated that large transfers were
made in 2001 and the first quarter of 2002 and that there was no directly
applicable accounting support for the transfers.” Ibid.
119. On June 20, 2002, WorldCom’s Audit Committee met to review the
capitalization of Line Costs. An auditor from the newly engaged audit firm of
KPMG,
described the circumstances underlying the transfer
of line costs to the Company’s capital accounts at the
end of each of the second, third, and fourth quarters
of 2001 and the first quarter of 2002. Mr. Malone
[the KPMG auditor] stated that the transfers, in his
view, did not comply with generally accepted
accounting principles (GAAP), and, in particular, Mr.
Malone noted the absence of documentation
supporting the transfers.
44
COMPLAINT