US telecommunications giant WorldCom - faced with a mountain of debt and a growing scandal over accounting irregularities that caused the company's stock to collapse - has filed for bankruptcy protection in the largest corporate failure in US history.
WorldCom, the second-largest long-distance telephone service provider in the US, admitted last month that it had improperly accounted for $3.9 billion in operating expenses over more than a year to hide losses.
The company filed in a New York District Court for protection under Chapter 11 of the bankruptcy code, which allows it to continue operating while it works out a plan to pay its debts, according to court records. The filing affects the company's US operations only and its worldwide operations - including its Irish - continue to function as normal.
The filing, which followed a meeting of company directors, would far eclipse the December 2001 collapse of energy trading giant Enron.
In the bankruptcy petition, WorldCom listed assets of $107 billion as of March 31, against debts of $41 billion. By comparison, Enron listed $63.4 billion in assets when it sought bankruptcy protection in December.
Proper accounting would have forced WorldCom to report a net loss in 2001 and for the first quarter of 2002, the company admitted in June. Instead, WorldCom claimed $1.4 billion in profit in 2001 and $130 million in profit for the first quarter of 2002. Final numbers for those five quarters are awaiting another audit.
WorldCom chief executive John Sidgmore warned earlier that his company's survival is in the public interest and a matter of 'national security,' noting that his company 'plays an important role in America's telecommunications infrastructure,' with some 20 million telephone customers, and is the largest Internet carrier in the world.
The ripple effect of WorldCom's demise 'would put many other telecom companies in jeopardy' and result in a further depression of telecom industry assets, he wrote in an opinion piece in earlier this month.
The company, which emerged from obscurity in the US state of Mississippi in 1997 with the $37 billion takeover of long-distance provider MCI, became one of the major success stories of the 1990s economic boom.
WorldCom's public woes began with the April 30 resignation of chief executive Bernie Ebbers as the company sank under a mountain of debt and faced a government inquiry into its finances.
Federal regulators were already investigating the firm's accounting practices, especially the way in which it covered $360 million in loans to Ebbers for stock margin calls.
The US Securities and Exchange Commission filed fraud charges on June 26 against WorldCom, a day after the company announced officials had misrepresented $3.8 billions of dollars in expenses for 2001 and the first quarter of this year. The news sent the company's stock price plummeting to as low as six cents a share, leading to its delisting from the Nasdaq exchange.
Earlier this month, congressional investigators revealed WorldCom executives had repeatedly brushed off warnings about shady accounting practices.
