Scott Sullivan, the former chief financial officer of MCI, is the latest top executive to plead not guilty in an Oklahoma criminal court to charges stemming from the bankrupt telephone company’s $11 billion accounting scandal.
He was fingerprinted, photographed, and released after posting $50,000 bail. State Judge Russell Hall set a preliminary hearing conference for Sullivan for November 13.
Last month, Oklahoma attorney general W.A. Drew Edmondson filed a 15-count criminal complaint against Sullivan and five other former MCI executives — as well as the company itself — including charges that they violated state securities laws by defrauding investors, lied about company finances, and ran a business as a fraud.
The suit alleges that bogus financial statements produced by WorldCom Inc. — still the company’s legal name — caused Oklahoma investors to lose large sums, including $64 million in state pension funds.
“These charges are unwarranted as a matter of law and unfair as a matter of practicality,” said Sullivan’s attorney Roy Black, according to Reuters. “We intend to prove that Mr. Sullivan responsibly reported accounting figures as a CFO of WorldCom” and was not responsible for the company’s difficulties and the loss of WorldCom stock value,” added Black, according to the Associated Press.
The other five MCI executives who have been charged include former chief executive officer Bernie Ebbers, former controller David Myers, former director of general accounting Buford Yates, former director of management reporting Betty Vinson, and former director of legal-entity accounting Troy Normand.
Each faces up to 10 years in jail and a $10,000 fine if convicted. Sullivan and four of the executives have also been charged in federal court.
You Can’t Shelter Their Names, IRS Tells Grant Thornton
The Internal Revenue Service is turning up the heat on Grant Thornton, the fifth-largest accounting firm, as the government agency tries to crack down on abusive tax shelters.
The IRS asked a federal judge to require Grant Thornton to turn over the names of people and companies that bought what the government believes were abusive tax shelters, according to The New York Times.
Michael Friedman, an IRS supervisory agent, accused Grant Thornton of failing to respond to 23 summonses he issued in June and July 2002 seeking documents and testimony, the paper reported, citing court documents. The Times added that according to IRS commissioner Mark Everson, the government asked the court to force the company to cooperate because “lawyers and accountants have a clear and established obligation to comply with the law requiring registration of tax shelters.”
In a statement, Grant Thornton reportedly responded that the court filing “comes as a total surprise to us, as we were given no advance notice that the matter was referred for summons enforcement.” The accounting firm added that it had “fully cooperated with the IRS, having provided thousands of pages of documents in response to over 40 summonses from the IRS.”
“We were not engaged in the promotion of abusive tax shelters,” the statement said, “and are disappointed that the IRS has taken the extraordinary step of proceeding with a summons enforcement action without discussing the matter with us first.”
The Timesnoted that the government has gone to court to enforce summonses issued to three other accounting firms — Arthur Andersen, BDO Seidman, and KPMG — as well as the Jenkens & Gilchrist law firm and the Diversified Group, a tax shelter promoter.
Earlier this week, the IRS and state tax officials announced the establishment of a new nationwide partnership to combat abusive tax avoidance. Under agreements with 40 individual states and the District of Columbia, the IRS will share information on abusive tax avoidance transactions, and those taxpayers who participate in them, with the participating states.
The agreements will allow the IRS and state agencies to avoid duplication and to piggyback on the results of each other’s work, the IRS said in a press release, and “to enable both state and federal governments to move more aggressively in the fight to ensure all taxpayers pay their fair share.”
The states and the IRS will also share information on any resulting tax adjustments, reducing the need for duplicating lengthy taxpayer examinations by both a state and the IRS.
FASB Seeks More Disclosure on Pensions
The Financial Accounting Standards Board has issued an exposure draft designed to improve company disclosures regarding defined benefit pension plans.
FASB said it plans to require that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs, and other relevant information. “The proposed disclosures will provide investors with greater visibility into plan assets and a clearer picture of cash requirements for benefit payments and contributions to fund pension and other postretirement benefit plans,” said FASB project manager Peter Proestakes, in a statement.
For the first time, companies would be required to reveal in their financial statements a breakdown of plan assets by category, such as equity, debt and, real estate. Companies will also have to include expected rates of return and target allocation percentages, or target ranges, for these asset categories.
Cash flows would include projections of future benefit payments and an estimate of contributions to be made in the next year to fund the pension and other postretirement benefit plans.
In addition to expanded annual disclosures, companies would be required to report the various elements of pension and other benefit costs on a quarterly basis.
The proposed guidance would be effective for fiscal years ending after December 15, 2003, and for the first fiscal quarter of the year following initial application of the annual disclosure requirements.
Jury Award Against Symbol Technologies
Symbol Technologies Inc., which is embroiled in an accounting scandal, suffered another setback on Wednesday.
The bar-code company announced in a press release that a jury awarded about $218 million in damages to Smart Media of Delaware Inc. and one of its shareholders against Telxon Corp., a wholly owned subsidiary of Symbol.
In 1999, according to Symbol, Smart Media and several principals filed claims against Telxon alleging that after discussions between the two companies, Telxon did not form a business alliance with Smart Media or provide financial support to develop the “Smart Handle” product, resulting in financial losses for Smart Media. In 2000, Telxon was acquired by Symbol through a merger of Telxon with one of Symbol’s wholly owned subsidiaries.
“We are, of course, disappointed that the jury did not confirm that a business agreement did not exist between Telxon and Smart Media,” said Walter Siegel, Telxon vice president, in a statement. “We believe there is a basis for overturning and, if necessary, appealing the verdict, and will be exploring our options in this matter.”
- The board of AOL Time Warner — formed in 2001 when America Online, the leading Internet company, purchased Time Warner, owner of Time magazine, CNN, and Warner Bros., voted Thursday to drop “AOL” from its name, according to wire service reports. Within the next few weeks, its stock will once again trade under Time Warner’s old “TWX” symbol on the New York Stock Exchange.
- NYSE board member H. Carl McCall — the interim leader of the exchange after the resignation under fire of Richard Grasso — said that a special committee reviewing the exchange’s governance will consider splitting the roles of chairman and chief executive, according to Reuters. One other reason for the proposed split, reported the wire service, is that “a number of possible candidates said they were not interested in the job.”
- Microsoft Corp., the company will add two seats to its eight-member board of directors. One of the two new members is Charles Noski, formerly a senior executive vice president and chief financial officer of AT&T. He was named vice chairman of AT&T’s board in 2002 before retiring later that year. Noski will also serve on the Microsoft board’s audit committee.
- EchoStar Communications Corp. said it will issue $1.5 billion of bonds and use the proceeds to repurchase existing debt. Investors reacted by bidding up its shares as much as 6 percent.
- Northrop Grumman Corp. has announce that it will terminate its shareholder rights plan on December 31.
- The Conference Board’s Index of Leading Economic Indicators increased by 0.4 percent in August, the fourth straight monthly rise. The July figure was revised upward to 0.6 percent. “The economy is improving, although the road will likely remain bumpy,” said Conference Board economist Ken Goldstein, in a statement.
- Only 28 percent of corporate real estate executives at large companies plan to transfer higher-level or service functions overseas in the next 12 months, according to a recent study conducted by CoreNet Global, a trade association for corporate real estate professionals.
Of those who planned overseas transfers, 53 percent reported that they would reduce their U.S.-based workforce by less than 5 percent, and 34 percent stated that the moves would have no effect on American jobs. The most frequently mentioned functions that might be moved overseas include call centers, engineering, and accounting.