NEW YORK - WorldCom Inc., which sought bankruptcy protection last month after disclosing that it had improperly accounted for $3.8 billion in recent expenses, said last night that it had uncovered $3.3 billion in additional accounting irregularities stretching back to 1999.
The company, parent of MCI, the nation's second-largest long-distance company and a major operator of the Internet, also said the new irregularities would force revisions in its accounting for 2000, last year and the first quarter of this year.
WorldCom also said that when the earnings are restated, it will further reduce the reported value of it assets by as much as $50.6 billion.
"We knew the problem was a lot bigger than WorldCom first admitted," Ken Johnson, a spokesman for the House Energy and Commerce Committee, said before the company released its statement. "The extent of the fraud is staggering."
The new disclosures include more instances of operating expenses being improperly classified as capital investments, the main violation of commonly accepted accounting practices previously disclosed, said an executive close to the audits.
But the major new twist, the executive said, involved reserves that WorldCom set up to cover uncollected payments from customers, judgments in lawsuits and other potential losses.
Companies that establish large reserves report them as a one-time charge against earnings, a practice that can be abused to create the accounting equivalent of a slush fund. When the company needs to lift reported operating profits in a quarter where it is in danger of falling short of Wall Street's expectation, it can transfer the necessary sums from the inflated reserve.
Such earnings management became an accepted practice in the 1990s.
Executives justified it as a way to smooth out earnings, protecting investors from volatility.
Critics such as Arthur Levitt, a former chairman of the Securities and Exchange Commission who argued that the growing use of "rainy day reserves" distorted financial reporting, were largely ignored.
WorldCom apparently resorted to such accounting on a huge scale during the time when Bernard J. Ebbers was chairman and chief executive, Scott D. Sullivan was his chief financial officer and David Myers was the company's controller.
Last week, Sullivan and Myers were arrested and charged with hiding nearly $4 billion in expenses and lying to investors and regulators in a desperate bid to keep the company afloat.
Myers, accompanied by his attorney, N. Richard Janis, met yesterday with Richard Owens, head of U.S. Attorney James Comey's white-collar fraud unit, in Lower Manhattan.
Myers is negotiating with prosecutors over a guilty plea that would require his cooperation in the government's investigation, said law enforcement officials who spoke on condition of anonymity.
The federal criminal complaint against Sullivan and Myers says Sullivan ordered the controller to direct employees to make bogus accounting entries.
St. John's University law professor Michael Perino said of Myers' negotiations: "One possibility is he's making what's called a proffer - he's indicating to the government what information he has.
"And that information could be about people who haven't been indicted. It's hard to imagine what else it could be."
Authorities are also investigating Ebbers, who owed WorldCom $408 million when he quit in April.
Reid Weingarten, an attorney for Ebbers, didn't immediately return a call seeking comment. Nor did Sullivan's defense lawyer, Irvin Nathan.
Janis and Comey declined to comment on the purpose of yesterday's meeting. "We wouldn't and shouldn't comment," Janis told Bloomberg News.
Attorney General John Ashcroft said last week that the alleged Sullivan-Myers scheme was designed to conceal five straight quarterly net losses and create the illusion that the company was profitable.
He said the investigation is continuing.
The company, parent of MCI, the nation's second-largest long-distance company and a major operator of the Internet, also said the new irregularities would force revisions in its accounting for 2000, last year and the first quarter of this year.
WorldCom also said that when the earnings are restated, it will further reduce the reported value of it assets by as much as $50.6 billion.
"We knew the problem was a lot bigger than WorldCom first admitted," Ken Johnson, a spokesman for the House Energy and Commerce Committee, said before the company released its statement. "The extent of the fraud is staggering."
The new disclosures include more instances of operating expenses being improperly classified as capital investments, the main violation of commonly accepted accounting practices previously disclosed, said an executive close to the audits.
But the major new twist, the executive said, involved reserves that WorldCom set up to cover uncollected payments from customers, judgments in lawsuits and other potential losses.
Companies that establish large reserves report them as a one-time charge against earnings, a practice that can be abused to create the accounting equivalent of a slush fund. When the company needs to lift reported operating profits in a quarter where it is in danger of falling short of Wall Street's expectation, it can transfer the necessary sums from the inflated reserve.
Such earnings management became an accepted practice in the 1990s.
Executives justified it as a way to smooth out earnings, protecting investors from volatility.
Critics such as Arthur Levitt, a former chairman of the Securities and Exchange Commission who argued that the growing use of "rainy day reserves" distorted financial reporting, were largely ignored.
WorldCom apparently resorted to such accounting on a huge scale during the time when Bernard J. Ebbers was chairman and chief executive, Scott D. Sullivan was his chief financial officer and David Myers was the company's controller.
Last week, Sullivan and Myers were arrested and charged with hiding nearly $4 billion in expenses and lying to investors and regulators in a desperate bid to keep the company afloat.
Myers, accompanied by his attorney, N. Richard Janis, met yesterday with Richard Owens, head of U.S. Attorney James Comey's white-collar fraud unit, in Lower Manhattan.
Myers is negotiating with prosecutors over a guilty plea that would require his cooperation in the government's investigation, said law enforcement officials who spoke on condition of anonymity.
The federal criminal complaint against Sullivan and Myers says Sullivan ordered the controller to direct employees to make bogus accounting entries.
St. John's University law professor Michael Perino said of Myers' negotiations: "One possibility is he's making what's called a proffer - he's indicating to the government what information he has.
"And that information could be about people who haven't been indicted. It's hard to imagine what else it could be."
Authorities are also investigating Ebbers, who owed WorldCom $408 million when he quit in April.
Reid Weingarten, an attorney for Ebbers, didn't immediately return a call seeking comment. Nor did Sullivan's defense lawyer, Irvin Nathan.
Janis and Comey declined to comment on the purpose of yesterday's meeting. "We wouldn't and shouldn't comment," Janis told Bloomberg News.
Attorney General John Ashcroft said last week that the alleged Sullivan-Myers scheme was designed to conceal five straight quarterly net losses and create the illusion that the company was profitable.
He said the investigation is continuing.