The Regents - University of California | Office of The President

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124. A series of e-mails, discovered by the internal audit which are
attached as Exhibit “B,” demonstrates how the scheme may have been hatched and
that the accounting was done to meet analysts’ expectations.
125. In an July 25, 2000, e-mail from Accounting Department member
Tony Minert to David Myers, WorldCom’s Controller and Senior Vice President
and Bufford Yates, WorldCom’s Director of General Accounting, Minert asks
whether they can capitalize costs for excess capacity based on an e-mail that he
had received advising that “if we could capitalize that piece [excess capacity] and
draw down against it like spare parts inventory, we would make the income
statement look great.”
126. On July 25, 2000, Yates e-mailed Myers:
I might be narrow minded, but I can’t see a logical path
for capitalizing excess capacity.
127. That same day, Yates responded to Minert:
David and I have reviewed and discussed your logic of
capitalizing excess capacity and can find no support
within the current accounting guidelines that would
allow for this accounting treatment. I think our efforts
should shift back to our gross margin analysis and the g/l
and essbase structural changes needed to support the
analysis.
128. Notwithstanding the knowledge that it was wrong to capitalize these
expenses, both Myers and Yates approved and participated in the capitalization of
the expenses.
129. The e-mails also show that WorldCom employees were willing to do
whatever it took to get the numbers the company needed to meet expectations. On
March 5, 2001, Myers e-mailed Tom Bosley with a cc to Sullivan regarding
“Telco.” (Telco is another term for line costs.)
Pls see the attached Gross Margin analysis which
highlights the need for immediate attention to Telco
and Margins.
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COMPLAINT