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. Last Updated: 07/27/2016

WorldCom Executives Face Federal Grilling

WASHINGTON -- WorldCom Inc. executives were due to face tough questions from U.S. lawmakers Monday about how a $3.85 billion accounting error at the telecommunications giant escaped notice for more than a year.

The second-largest U.S. long-distance telephone carrier is embroiled in a bookkeeping scandal that hid $1.22 billion in losses over five quarters starting in 2001 -- a debacle that could eclipse the crash of Enron Corp., which filed last year for the largest bankruptcy in U.S. history.

The U.S. House Financial Services Committee, which probed auditor Andersen's role in the Enron collapse, was set to hold a hearing delving into how the errors went undiscovered and whether laws need strengthening.

"It appears that some of these cost-cutting efforts and cooking the books occurred to basically hide a failing business practice,'' Representative Michael Oxley, chairman of the committee, said on the "Fox News Sunday'' television show.

WorldCom has said it is also probing its 1999 and 2000 financial statements for further accounting irregularities.

The men at the center of the controversy, former WorldCom CEO Bernard Ebbers, former chief financial officer Scott Sullivan and former controller David Myers, have been subpoenaed to appear but may invoke their right not to testify, like Enron CEO Kenneth Lay did last year.

A congressional source said Sunday that Ebbers tried to cut in half the budget of the company's internal audit unit but it was only sliced 10 percent. Ebbers resigned in April under pressure for the company's huge debt and big personal loans.

Internal auditor Cynthia Cooper began uncovering the accounting problems in May but the committee scratched her appearance at the hearing for fear of disrupting federal investigations.

Expected to testify are WorldCom chief executive officer John Sidgmore, chairman Bert Roberts and Salomon Smith Barney telecommunications analyst Jack Grubman, and Melvin Dick, once a senior partner at former WorldCom auditor Andersen.

Sidgmore last week apologized for the crisis and is seeking new lines of credit to prevent the company from filing for bankruptcy.

He and Roberts are expected to echo statements made last week about the importance of the company's survival to the U.S. economy and national security, a source familiar with their testimony said.

Grubman is expected to draw questions from lawmakers because of his "buy'' recommendations on telecommunications stocks even as the industry was cratering from over-capacity, stiff competition, price wars and a sour economy. He downgraded WorldCom from "neutral'' to "underperform'' just before the company's woes became public.

WorldCom is being investigated by the Securities and Exchange Commission, which has already filed fraud charges against the company, as well as by the U.S. Justice Department.