23. I have spoken with SEC investigators who have confirmed from a review of the relevant WorldCom filings for the first quarter of 2001 through the first quarter of 2002 that WorldCom did not publicly disclose the decision to capitalize line costs in its SEC filings, or in any other publicly-issued statement known to the SEC. 24.I have reviewed WorldCom's 2001 Form 10-K, in which WorldCom reported to the investing public that its line costs expressed as a percentage of overall company revenues remained consistent over a three year period, namely 41.0% for 1999; 39.6% for 2000, and 41.9% for 2001, when, in truth and in fact, line costs as a percentage of overall company revenue for 2001 was approximately 50%.
25.I have spoken with a representative of Merrill Communications LLC ("Merrill"), a filing agent that assists companies in electronically filing periodic reports with the SEC, butts and boobies iphone case The Merrill representative stated that, at all times relevant to this Complaint, WorldCom's quarterly and year-end financial statements were transmitted to Merrill's office in New York, New York and were thereafter transmitted electronically by a Merrill subcontractor, located in New York, New York, to the SEC and were filed electronically with the SEC..
The Discovery of the Line Cost Transfers. 26. I have spoken with the VP-IA and various staff members of the Internal Audit department. The VP-IA advised me that from May through July 2002, she and various members of her staff conducted an internal review of certain of WorldCom's capital expenditures and journal entries in WorldCom's general ledger. During the course of that internal audit, the VP-IA and members of her staff reviewed numerous internal WorldCom business records and interviewed a number of WorldCom officers and employees. After discovering a number of the journal entries described in paragraph 18, above, the VP-IA and a member of her staff questioned both SCOTT D. SULLIVAN and DAVID MYERS, the defendants. The VP-IA and a member of her staff have advised me of the following concerning those interviews.
b, On or about June 17, 2002, when questioned about the journal entries referred to in paragraph 18 above, DAVID F, MYERS, the defendant, stated, in substance and in part, that beginning in or about 2001, WorldCom's management determined that the company's cost structure had become too high and that the "field" had been asked to lower the cost structure of the network, MYERS further stated, in substance and in part, that WorldCom could not continue with the cost structure at the current levels and that if the cost structure did not change, the company "might as well shut the doors." MYERS further stated, in substance and in part, that he could construct support for the journal entries that had been made to transfer line costs to capital expenditures, but he was not going to do that, MYERS further stated, in substance and in part, that the amounts were booked based on what the margins [i.e., ratio of line costs to revenues] had been historically and that there were no accounting principles butts and boobies iphone case supporting these entries, MYERS further stated, in substance and in part, that he had felt uncomfortable with the entries since the first time they were booked; that WorldCom probably should not have capitalized the line costs but that once it was done for the first time, it was difficult to stop, MYERS further stated, in substance and in part, that he hoped this conduct would not have to be explained to the SEC..
27. Other FBI agents have spoken with the WorldCom KPMG Engagement Partner, who advised them of the following, in substance and in part. a. On or about June 18, 2002, DAVID F. MYERS, the defendant, stated, in substance and in part, that WorldCom had capitalized some excess line costs but there was no supporting documentation for the adjustments. MYERS further explained that he and other members of the company?s senior management were aware that historically, WorldCom?s line cost margins [i.e. ratio of costs to revenues] had been approximately 40 percent. MYERS further stated, in substance and in part, that because of overcapacity in the system, expenses for leases were going up and therefore "they" had decided to capitalize some of the excess capacity to make the margins fit in with past experience. MYERS acknowledged, in substance and in part, that he was aware that this approach had no basis in accounting principles.