Litigation Release No. 17753 / September 26, 2002
Accounting and Auditing Enforcement Release No. 1635 / September 26, 2002
SEC Charges Former WorldCom Controller Myers
With Participating In Multi-Billion Dollar Financial Fraud
Securities and Exchange Commission v. David F. Myers, Civil Action No. 02 CV7749
The Securities and Exchange Commission today filed a civil enforcement action against David F. Myers, formerly the Controller and a Senior Vice President of WorldCom, Inc., and a CPA. The Commission charges that Myers participated in a massive fraud that inflated the company's earnings at the direction and with the knowledge of WorldCom's senior management. Also today, in connection the same conduct, Myers pled guilty to criminal charges filed by the U.S. Attorney's Office for the Southern District of New York.
The Commission's action against Myers is its second civil enforcement action related to the WorldCom fraud. The first was filed against WorldCom, Inc. on June 27 of this year. (Litigation Release No. 17588.) Since then, WorldCom has admitted that beginning in 1999, as a result of undisclosed and improper accounting, it materially overstated the income it reported in its financial statements by approximately $7.2 billion. It has also filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.
The Commission's complaint filed today against former Controller Myers alleges that in the second half of 2000, by improperly decreasing certain reserves to reduce "line costs" (expenses for accessing the networks of other telecommunications companies), Myers and others caused WorldCom to overstate pre-tax earnings by at least $1.2 billion. Thereafter, from the first quarter 2001 through the first quarter 2002, Myers and others improperly capitalized certain line costs, which resulted in an overstatement of WorldCom's pre-tax earnings by approximately $3.8 billion. During the same period, Myers and others, including members of senior management, made materially false or misleading statements or omissions to WorldCom's independent auditors in connection with audits and the preparation of filings with the Commission.
For this misconduct, the complaint charges Myers with violating numerous provisions of the federal securities laws, including the antifraud, books and records, internal controls, and lying-to-auditors provisions (Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder). It further charges him with aiding and abetting WorldCom's violations of the periodic reporting, books and records, and internal controls provisions (Exchange Act Sections 13(a) and 13(b)(2)(A) & (B) and Rules 12b-20, 13a-1 and 13a-13 thereunder). The Commission seeks a permanent injunction, disgorgement of all ill-gotten gains, civil money penalties, and an order barring Myers from serving as an officer or director of a public company.
The Commission acknowledges the assistance and cooperation of the U.S. Attorneys' Offices for the Southern District of New York and Southern District of Mississippi, and the Federal Bureau of Investigation.
The Commission's investigation into matters related to WorldCom's financial fraud is continuing.
