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Some investigators and stock analysts say they find it difficult to believe that a hands-on CEO like Ebbers--who was tight with Sullivan--didn't know of the accounting tricks at WorldCom. Mississippi attorney general Mike Moore says his office investigated Ebbers when WorldCom was an upstart known as LDDS and found him playing loose with the rules. Ebbers' employees made a series of $200 campaign contributions to a local politician and were illegally reimbursed by the company. In 1995 WorldCom pleaded guilty to a felony charge and paid a $120,000 penalty. Moore says the evidence "showed that it was Bernie Ebbers who asked those employees to write those checks." (Ebbers could not be reached for comment.)
The upshot of the whole WorldCom debacle is that when even simple tricks go undetected, there is no saying where it all ends, and that's what investors are coming to understand. They're voting with their feet. Those losing faith include company insiders, who are in the best position to see how firms are managed. Since last September, insiders have sold $66 billion more of their employers' stock than they have bought (all of it legally and publicly disclosed). Insider purchases have all but dried up, according to research firm TrimTabs. A net $10 billion was withdrawn from U.S. stock funds in June, the largest monthly outflow since last September after the U.S. terror attacks. "Investors," says Robert Adler, president of AMG Data Services, "are reallocating into bonds and overseas equities."
In a new survey of wealthy Americans, U.S. Trust found that two-thirds do not trust the managements of publicly traded companies and three-quarters have little faith in the integrity of financial statements. "There have been enough serious breakdowns in corporate governance, accounting, auditing and investment banking to make everyone worry," says Morris Goldstein, a senior fellow with the Institute for International Economics.
With foreigners sending less money to the U.S. and Americans making more investments abroad, the dollar has slid 11% against major currencies since April 1. Famed hedge-fund manager and currency speculator George Soros says the buck could fall an additional 33%. "We're at a tipping point of whether foreigners take a massive stake out of the U.S.," says Joseph Quinlan, senior global economist at Morgan Stanley. "If you have another accounting issue along with weaker than expected growth and poor profitability, then you may see a vicious circle." The next in the series. --With reporting by Alice Jackson Baughn/Jackson, Daren Fonda/New York City and Collette Parker/Atlanta