According to Parker & Waichman, WorldCom first publicly announced it had raked in $1.4 billion in 2001 profits and $130 million in Q1 2002. In reality, the lawyers said, the firm “lost a considerable amount of money” during that time frame.
To make it look like WorldCom operations were throwing off profits, the lawyers said WorldCom classified operating costs as capital expenditures, which resulted in reduced expenses and created the illusion of profits. Parker & Waichman said the practice was also a violation of Generally Accepted Accounting Principles.
The Parker & Waichman lawsuit is also expected to name Salomon Smith Barney (SSB). SSB employees inappropriately pressured WorldCom employees to convert stock options to stock and then put those shares in a margin account in order to buy even more shares, the law firm said in a statement announcing the suit.
These brokers based their recommendations on favorable WorldCom stock analysis from former Salomon Smith Barney telecommunications analyst Jack Grubman, Parker & Waichman said it will allege.