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WorldCom: A scandal too far

Another week, another scandal. At least the regulators are learning from past mistakes. Having been upstaged by New York State Attorney Eliot Spitzer over conflicts in sell-side research, SEC chairman Harvey Pitt took less than 24 hours to respond after WorldCom admitted to a $3.8 billion accounting fraud.

And for once he was tough. Pitt has slapped a civil lawsuit on WorldCom, ordered the company not to destroy any documents, and forbidden it from paying any severance or bonus payments to officers, directors or employees.

Beyond that, he's planning to force the chief executives and chief financial officers of the country's largest 1,000 companies publicly to certify the accuracy of the financial statements in their last annual reports.

It's the boldest attempt yet to try to restore investor confidence in America's financial markets. He didn't have much choice, really. The fraud looks likely to send WorldCom careering into bankruptcy, making it the largest ever in US history.

Whether his intervention can work is another matter, as the real trick lies in convincing people that there is someone, or something, competent minding the store.

It was not the SEC that discovered the fraud, for example, but WorldCom itself, although it decided to conduct an audit review after a more general SEC investigation.

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