WorldCom Inc. moved to the brink of collapse Tuesday when it was disclosed that the company inflated earnings by improperly accounting for $3.8 billion in expenses over the last five quarters. The stock of the nation's second-biggest long-distance company sank to 20 cents in after-hours trading, from 83 cents at the close of trading. Its chief financial officer was fired, and the company said it would lay off 17,000 people beginning Friday. The news will certainly reverberate in the stock markets Wednesday, as already furious and frustrated investors react to the latest corporate misdeeds. Some experts said the revelations will serve as a final blow for the industry pioneer with deep roots in the Dallas area. WorldCom employs about 81,000 workers. "It's very close to the last straw," said Stan Kroder, a telecommunications management professor at the University of Dallas. WorldCom said the revelations, while deeply troubling, wouldn't impact its financial viability. It can continue to fund operations because it has no debt coming due in the next six months. "I want to assure our customers and employees that the company remains viable and committed to a long-term future," chief executive John Sidgmore said in a prepared statement. WorldCom discovered in an internal audit that it had accounted for $3.8 billion in regular expenses as capital costs, which typically involve purchases of new equipment and software. When it corrects the transgression, the company will swing to a loss for the full-year 2001 and the first three months of 2002. It had previously reported a $2.14 billion profit in 2001 and $220 million profit for the first quarter of 2002. Chief financial officer Scott Sullivan was fired and controller David Myers resigned Tuesday. The company said it has asked its auditor, KPMG LLP, to conduct a new audit and has retained William R. McLucas, a former Securities and Exchange Commission official, to conduct an independent investigation. Until mid-May, the company had been audited by Arthur Andersen LLP, which was convicted of obstruction of justice this month in federal court in Houston. In a statement Tuesday evening, Andersen said WorldCom's CFO did not consult with Andersen about the accounting treatment. WorldCom, which asked its embattled chief executive Bernard J. Ebbers to leave in May, has been wracked by worries about its ability to pay back a $30 billion debt and an ongoing SEC accounting investigation, among other things. The stock ended regular trading Tuesday at 83 cents, down 8 cents. It was trading at 20 cents at 7 p.m. Dallas time. Once CNBC cable news reported the story, the stock fell to 35 cents in the space of four minutes beginning at 5:20 p.m. WorldCom's Dallas-area ties run deep. MCI, which WorldCom bought in 1998, took on Ma Bell in the 1970s and played a big part in its breakup in 1984. MCI had a profound impact on Richardson and what would later become known as the Telecom Corridor. After going public in 1972 in a $30 million initial offering, the former MCI had difficulty buying equipment in a market still dominated by pre-breakup AT&T Corp. Richardson-based Collins Radio stepped up to supply the gear as MCI rolled out its national phone network in 1973. MCI built a Richardson facility to be close to its supplier, which helped draw other companies that wanted to be close to MCI. That concentration of telecom businesses fed on itself till the area became an industry powerhouse, with MCI as one of the pillars. Recent questions about long-distance and fiber-optic companies' accounting practices came to the forefront with Global Crossing's bankruptcy filing and have broadened to include the likes of Qwest Communications International and WorldCom. But all is not lost, said Jeffrey Kagan, an independent industry analyst based in Atlanta. The latest accounting issues cast a dark cloud over WorldCom, but it still has real revenue, customers and the largest Internet network in the world. "When something like this happens it shakes the confidence," he said. "But the company itself still has all those same tens of millions of customers and revenues that they had a week ago." ---