NEW YORK (CNN/Money) -
President Bush vowed Saturday to protect the economic security of Americans and called for new rules to enforce corporate responsibility, following this week's disclosure of massive accounting irregularities at WorldCom.
In his weekly radio address, which is pre-recorded, Bush said he would press Congress to pass the 10-point plan he proposed in March to improve corporate responsibility, including forcing executives to lose all money they gain by fraud and serving jail time, if found criminally negligent.
"When bad accounting practices make the company appear to be more successful than it actually is, corporate executives should lose their phony profits gained at the expense of employees and stockholders," he said.
Bush's March proposal was prompted by the scandal involving energy giant Enron, which filed the biggest bankruptcy in U.S. history last December. Thousands of Enron employees lost their retirement savings when the company went under. Its accounting practices have been the focus of a Justice Department inquiry.
Calling WorldCom's revelations "deeply troubling," Bush noted that the Security and Exchange Commission immediately filed suit against the company to preserve documents. The SEC's action should help ensure that a thorough investigation can take place, and that the company cannot give massive payments to its executives during the probe, Bush said.
WorldCom, the nation's No. 2 long-distance phone company, revealed late Tuesday that it had masked $3.8 billion in expenses, thereby inflating its pretax earnings in what the SEC called accounting irregularities that were "unprecedented."
Bush's concerns about WorldCom and other problematic companies also were addressed Saturday by Sen. Paul Sarbanes, D-Maryland, who delivered the weekly Democratic radio address. "We are facing a crisis of confidence that is eroding the public's trust in our markets, and poses a real threat to our economic health," Sarbanes said. "The strain on the economy is deep and spreading."
Earlier this week, Bush sharply criticized WorldCom, which is set to lay off 17,000 employees due to its financial problems, and called the revelations "outrageous."
Meanwhile, WorldCom President and CEO John Sidgmore said Friday that the company's management was equally surprised and outraged by the $3.8 billion accounting scandal. Sidgmore, in a letter to Bush, reaffirmed his commitment to working with the president and appropriate agencies to investigate the matter and will take further decisive action.
"Yesterday, you rightly expressed outrage and concern about past accounting irregularities at WorldCom," Sidgmore said in the letter. "I am proud that our own people discovered these irregularities and had the courage and professionalism to act quickly."
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WorldCom has retained William McLucas, former chief of enforcement at the SEC, to investigate the accounting irregularities, and is in talks with its banks to secure additional lines of credit. It is also looking to sell assets and Friday started laying off 17,000 people in a bid to survive. Details
WorldCom spokesman Brad Burns said Friday one of McLucas' charges is to determine something not yet clear: when the accounting discrepancies began. "We're looking at everything to make sure we get to the bottom of exactly what's happened," Burns told the Associated Press. "Everything is on the table on that front."
In its civil suit against WorldCom, the SEC gave the Clinton, Miss.-based company until Monday morning to file a detailed report on the "circumstances and specifics of these matters."
In New York, State Attorney General Eliot Spitzer is looking at possible criminal conduct in connection with Salomon Smith Barney analyst Jack Grubman and the collapse of WorldCom, a spokesman told CNNfn. The criminal investigations bureau of the attorney general's office will be leading the investigation of Grubman, who cut his rating on the company a day before it announced its accounting problems.
Separately, investigators looking at WorldCom have found no records to support the shift of $3.8 billion in expenses, according to a published report.
The New York Times reported Friday that the lack of records increases the likelihood that the transactions involved criminal fraud. The newspaper also said that just enough expenses were shifted during the past five years to allow WorldCom to exactly meet its profit goals over that period.
The paper also quoted unnamed people close to the company as saying that Scott Sullivan, who was fired as chief financial officer when the accounting scandal broke earlier this week, told the company's board that he shifted the expenses without consulting the company's former outside auditor, Arthur Andersen, and also implied that he did not consult other top company executives, either.
The lack of documentation also raises questions as to why the problems were not detected by auditors from Andersen, the Chicago-based accounting firm that was found guilty earlier this month of obstructing justice for destroying documents related to Enron, whose books it also audited.
In other developments, WorldCom was set to start laying off 17,000 employees Friday, as its financial situation worsened Thursday when major lenders refused to extend additional loans, and talks on its $5 billion in loans coming due were halted. Details
Also, a judge issued a restraining order Thursday to WorldCom's former CEO Bernie Ebbers, ex-CFO Sullivan, and officials from Arthur Andersen to ensure they don't destroy documents related to the telecom company. An earlier order from the SEC prevented current WorldCom employees, officers and auditors from destroying documents. Details
The restraining orders followed a vote from a House of Representatives panel Thursday to subpoena four people to testify about the accounting scandal at WorldCom, including Ebbers, Sullivan, the current CEO, Sidgmore, and Salomon analyst Grubman. Details