WorldCom's black hole rises to $7bn

Bankrupt US telecoms giant WorldCom has revealed that its accounting black hole has mushroomed by $3.3 billion (£2.2bn), taking the total to more than $7 billion.

The additional $3.3 billion was money from the company's reserves, which was misrepresented in the company's accounts as operating income. The latest irregularity was found during a review by World-Com's new team of executives.

America's second-biggest long-distance telephone carrier has also announced it may have to write off $50.6 billion (£33bn) - a figure equivalent to the economies of the Czech Republic and Hungary combined.

WorldCom filed for Chapter 11 protection from creditors on 21 July in the biggest-ever US corporate bankruptcy.

WorldCom has also warned that the latest revelations might not be the last. "Investors and creditors should be aware that additional amounts of improperly reported income may be discovered and announced," the company said.

The deepening WorldCom crisis could heighten the turmoil in financial markets, which have dropped significantly in recent weeks.

One independent financial analyst called the latest turn of events "beyond comprehension".

Expert Jeffrey Kagan said: "The damage to WorldCom's brand is severe and it's getting to the point where it may be irreparable."

The disclosure came as the lawyer for former WorldCom chief executive Bernie Ebbers claimed his client is innocent.

Reid Weingarten of Washington law firm Steptoe & Johnson said: "I'm certain of this. When the investigation is done, there will not be a shred of credible evidence that Bernie Ebbers had a thing to do with those [accounting] decisions.

"The chief executive of a company with 60,000 employees can't know about every decision made," he said. "Accounting decisions are arcane. They're mysterious for people who are not trained in the science. Bernie Ebbers certainly was not."

Weingarten said top executives were being unfairly treated for relying on audits by accounting firms and decisions made by employees responsible for the accounting.

"People who rely on professionals shouldn't be prosecuted," he said. "People who make inadvertent mistakes shouldn't be prosecuted. People who preside in a titular way over large companies in which mistakes are made shouldn't be prosecuted.

"Again, criminal justice should only include people who do the traditional things that are wrong: lying, cheating and stealing."

Ebbers resigned in April as revelations about the massive personal loans he had received from the Mississippi-based company emerged.

His resignation came as WorldCom reeled from massive debts and a plunging share price. Last week, the company's former chief financial officer Scott Sullivan and former financial controller David Myers were arrested on charges of securities fraud. The pair face prison terms of up to 65 years if convicted.

The accounting scandal at World-Com, audited by disgraced accountancy firm Andersen, has triggered stock market convulsions around the world. Financial investors are now calling into question the accuracy of accounts filed by dozens of other major companies.