The US financial watchdog, the Securities and Exchange Commission (SEC), has charged US telecommunications giant WorldCom with fraud.
With executives like WorldCom's, who needs a crumbling industry?
Market analyst Michael Hodel The company has admitted that its profits had been inflated by $3.8bn (£2.5bn) between January 2001 and March 2002, to keep them in line with Wall Street expectations.
President George W Bush has condemned the fraud as "outrageous" and vowed to address the problems shaking corporate America.
Analysts predicted that WorldCom would file for bankruptcy before the end of week, after it announced 17,000 redundancies and sacked its chief financial officer, Scott Sullivan.
New cash deal 'dead'
"WorldCom's shareholders' long-term hope depends largely on the faith of the firm's creditors, which is now probably nonexistent," said Michael Hodel of Morningstar, a fund rating agency.
"With executives like WorldCom's, who needs a crumbling industry?"
WorldCom now can only avoid bankruptcy by securing $5bn in fresh cash. However, sources close to the creditor banks holding the firm's $30bn debt said this deal was now dead.
Without enough money to cover expenses and interest payments, the firm would be forced to file for Chapter 11 bankruptcy. This would give WorldCom protection from its creditors, but would allow it to continue operating.
Blocking another Enron
SEC chairman Harvey Pitt said the commission was seeking a court order to prevent WorldCom disposing of assets, destroying documents or making payments to senior officers - as happened in the case of failed energy giant, Enron.
Pitt: SEC trying to restore lost credibility
He said the SEC move was "an attempt to restore the understandably lost credibility that people have in what they are hearing and reading".
The WorldCom fraud is far bigger in money terms than Enron's misdeeds, and will further undermine the trust of investors in corporate America.
The US dollar lost strength and share prices around the world plummeted on Wednesday, although the greenback and Wall Street later recovered lost ground.
The SEC said WorldCom's accounting improprieties were of "unprecedented magnitude".
The news is also another damning indictment of auditor Andersen which was responsible for approving the accounts of WorldCom as well as Enron.
Trouble at the top
WorldCom was one of the pioneers of the 1990s telecoms boom.
The scandals that shook Wall Street Enron's accounts turned out to be an elaborate scam Andersen approved the WorldCom and Enron accounts Other firms under fire: Xerox, Adelphia, Tyco, Global Crossing
Click here for more details An aggressive acquisition spree saw it grow from a small-time regional operator in the early 1980s to a huge international business, but also saddled it with $30bn of debt.
The firm was already shrouded in scandal after the departure of its founder and chief executive, Bernie Ebbers, in April.
Mr Ebbers borrowed hundreds of millions of dollars from the firm to underwrite the inflated prices he had paid for the company's own shares.
WorldCom shares have tumbled from a high of more than $60 in 1999 to 83 cents this week.
Trading on the stock on the Nasdaq market was suspended on Wednesday,
The shares had hit a mere 10 cents in pre-opening trade.
Secret actions
The scandal broke late on Tuesday evening, when the company said it had not actually made the $1.4bn of profits it reported in 2001, nor the $130m stated during the first three months of 2002.
Founder Bernie Ebbers was forced to quit in April
WorldCom said its chief financial officer Scott Sullivan improperly booked expenses as investment in order to make the company look much healthier than it actually was.
John Sidgmore, who took over from Mr Ebbers at the top, said executives were "shocked by the discoveries".
Andersen is protesting its innocence, saying Mr Sullivan did not let on what he was doing.
The SEC added: "We are ordering the company to file, under oath, a detailed report of the circumstances and specifics of these matters." ___________________
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