Investors locally and globally were left shaking their heads yesterday as investment markets went into freefall after US telecoms giant WorldCom announced nearly $ 4 billion in accounting irregularities.

The announcement was a deja vu for investors already shaken by the collapse of energy giant Enron from accounting irregularities.

Accounting firm Arthur Andersen has been implicated in the demise of Enron, and it was revealed in a BBC news report yesterday that Andersen was until recently the audit firm for WorldCom.

But Enron was a $600 million dollar fraud, and WorldCom appears to be of much bigger magnitude with its $3.8 billion dollar cover-up job.

The US Securities and Exchange Commission said the WorldCom irregularities "were of a magnitude never seen before".

Yesterday Alan Thompson, who took over as CEO of the Bank of Butterfield within recent months, told The Royal Gazette: "The markets are in free fall this morning. WorldCom misappropriated some expenses - $ 4 billion. How you do that is beyond me," he said.

Mr. Thompson added: "It is the integrity of the accounting profession and corporate governance. It is just one more incident. That is the problem."

Local investment professional Anne Kast (pictured) revealed her phone had been ringing all day as concerned clients made contact yesterday.

Ms Kast, who is president of Kast Investment Management, said investor confidence is "wearing thin".

"We are in a long, grinding bear market. This has been going on for three years and the bad news keeps coming, and it wears thin on investors.

And the bad news is coming from a lot of different directions, and we are also in war mode (against terrorism).

"There continues to be a lot of bad news when investors were already feeling bad about the markets."

But Ms Kast said her advice to clients remains to have a long-term plan and a portfolio of diversified investments.

"It is a fruitless endeavour to try and time the market. One has to protect with strategy, and diversification is first and foremost and investors have to take a cautious approach," she said.

Ms Kast added: "On a happier note, I do believe in the financial system and I don't predict a meltdown of any sort."

Ms Kast also said the news was not all bad and cited better earnings, inflation levels holding steady, interest rates not going up and some positive activities in Asian markets and from European investments.

Ms Kast did not however downplay the concern from her clients. She said for example that she had spoken with a client yesterday who queried whether to get out of the market and convert investments to cash.

Although Ms Kast said she would not deter a nervous investor from getting out of the market, she said there would be risks involved in taking that tack in the current market.

"The risk is you would take a loss selling out after a two and a half year decline. And money is made when markets turn. But to make money in the market you have to be there.

"The other risk in going in to cash is that it is difficult to make the decision to go back into the market," she said.

Although Ms Kast said her firm has been "moving things around" in order to maintain diversification, changes were not made in response to the WorldCom announcement yesterday.

"It is all in how you manage these things," she said and added that those in the market have a long-term believe in the system: "An investor is a believer, if you don't have that belief you are not in the market.

"That is the difference between a saver and an investor," she said.

Ms Kast added that the Enron and now WorldCom scandals were new territory for America as historically the US had had a good reputation for its accounting practice.

Ms Kast concluded: "Hard times happen, and we have not seen anything so bad since 1973, 74. I think everyone would like to see it all stop."

First Bermuda Securities yesterday reported that in contrast it had had very few calls from clients following this latest assault on the markets.

CEO Jeff Conyers said: "Today's investors are not typically nervous. Anyone that was really nervous already got out of the market."

Mr. Conyers added: "Interestingly enough the calls we have had have been from some mutual fund managers saying they did not have World Com stock."

Speaking of investor confidence, Mr. Conyers said: "Our experience is that this is a process. It has been going on for two and a half years and it is just one more nail in the coffin of investor confidence.

"People are numb," he said.

When asked what actions investors should take, Mr. Conyers said: "There is extreme negative sentiment but it is hardly a time to be bailing out.

"Those who withstand are those with a long-term view and those who buy stocks when they are a good value and hold on to them. And investors have to reestablish (stock) valuations that make sense.

"Those doing well are those with a long-term perspective. If one looks at the market, it is on a cycle. It goes from one extreme to another," Mr. Conyers said.

Robert Pires, chief investment officer at Bermuda Investment Advisory Services (BIAS), yesterday cited further deterioration of investor confidence following the WorldCom announcement.

Mr. Pires said that the essence of the dilemma is a drop in investor confidence leads to less incentive for investors to plug money into the market.

He said the end result could be that economic recovery could be jeopardised.

Mr. Pires pointed to an editorial in Business Week this week, which read: "It is impossible to run a fast-growth, high-investment economy without fairness and a level playing field for investors - and right now, it seems there is little of either.

"Each day brings to light yet another case of corporate falsehoods, misrepresentations and manipulation of markets.

"Fortunately, there is little evidence yet of wholesale collapse of investor confidence...History suggests, however, that the loss of confidence when it comes, could happen very rapidly.

"The damage could be enormous. It would become far more difficult for companies to raise money...Moreover, the crisis would have the potential to imperil what business needs: a market-based economic system without excessive regulation, and strong financial markets with broad-based investor participation."

Mr. Pires concluded that despite signs of economic recovery, overall recovery could be delayed at least as far as the market's bearing on the recovery: "Recovery could be a bit longer given this latest bit of news," Mr. Pires concluded.