By Jessica Hall

PHILADELPHIA (Reuters) - Two congressional committees turned up the heat on WorldCom Inc. on Thursday, subpoenaing executives and demanding corporate records as U.S. officials vowed to tighten accounting regulations and President Bush said he was worried about the economic fallout of the recent wave of financial scandals.

The House Financial Services Committee summoned WorldCom Chief Executive John Sidgmore and former boss Bernie Ebbers for a July 8 hearing. The company, second-largest U.S. long-distance operator, faces bankruptcy after being charged with fraud for improperly booking $3.85 billion in ordinary expenses, a move that allowed it to post $1.38 billion in net income in 2001, instead of a loss.

The panel also subpoenaed WorldCom's recently fired financial director, Scott Sullivan, and Salomon Smith Barney telecommunications analyst Jack Grubman, who long trumpeted WorldCom to investors before cutting his rating a day before the Clinton, Mississippi company disclosed the scandal.

"This at least on the surface appears to be a total breakdown of the ethics of some members of the corporation," said Michael Oxley, chairman of the House Financial Services Committee after signing the subpoenas.

Meanwhile, the House Energy and Commerce Committee, which has been investigating collapsed energy trader Enron Corp., sent a letter to WorldCom seeking a slew of records, including the company's recent internal audit that discovered the accounting errors and audit committee minutes dating back to 1997.

President Bush demanded a full investigation into a scandal that rivals the collapse of bankrupt energy trader Enron Corp. and casts further doubt on auditor Andersen, which was convicted for obstructing an Enron probe and vetted WorldCom's books until being fired this year.

"I'm concerned about the economic impact of the fact that there are some corporate leaders who have not upheld their responsibility," Bush told reporters ahead of a meeting with Russian President Vladimir Putin during a summit in Canada of the Group of Eight nations.

Bush said he was worried about the economic consequences of accounting scandals at U.S. corporations, and urged executives to "fully disclose all assets and liabilities and ... treat your shareholders and employees with respect."

WorldCom's disclosure late Tuesday has pushed it to the brink of bankruptcy as the company struggles with $30 billion in debt and how to overcome its inability to secure $5 billion in much-needed new funds after the accounting bombshell.

The company looked for financial advisers, and one industry source said WorldCom hired the investment bank Blackstone Group, a top restructuring adviser, and Weil Gotshal & Manges, a leading bankruptcy law firm.

A WorldCom spokesman did not return several calls seeking comment.

Hedge funds specializing in distressed debt snapped up bonds of the beleaguered company, in a bet they will be a good investment provided no more bad news or evidence of wrongdoing emerges.

OFFICIALS URGE REFORM

Improper accounting and the havoc it wreaked on global markets and investor confidence grabbed the attention of the Group of Eight leading industrialized nations at the Canadian mountain retreat of Kananaskis.

"It's a preoccupation of all the leaders that this is creating at this time a lack of confidence in the markets," Canadian Prime Minister Jean Chretien said.

U.S. officials echoed the president's outrage about WorldCom and said corporate leaders should be prosecuted to the full extent of the law. U.S. Treasury Secretary Paul O'Neill said regulations in some ways needed to be strengthened.

O'Neill said the U.S. Securities and Exchange Commission, which on Wednesday filed charges against WorldCom for allegedly manipulating earnings, should be given the right to freeze the assets of officials implicated in scandals such as WorldCom.

"In cases like this, the SEC even would be able to go in and freeze accounts and freeze assets, so while some of these things are being litigated the money doesn't run away and it can be redistributed to employees and shareholders," he said.

White House economic adviser Lawrence Lindsey said the administration is backing a $250 million increase in funding for the SEC, the U.S. agency charged with protecting investors and maintaining the integrity of the securities markets.

"We have to follow up on a lot of these abuses and clean them up and the president has come up with tougher corporate governance standards," Lindsey said in a CNBC interview.

MORE PROBES EXPECTED

The SEC alleged WorldCom hid expenses to artificially inflate earnings to meet Wall Street expectations, a gimmick that hid $1.22 billion in losses WorldCom would have otherwise posted for 2001 and this year's first quarter.

Grubman, a longtime WorldCom cheerleader, on Monday finally cut his rating on the company's shares to "underperform" from "neutral." By that point, the stock had fallen to around $1, from a peak of $64 in 1999.

During the bull market, Grubman became one of the highest-paid analysts on Wall Street and had the ear of telecom industry executives during the merger boom of the late 1990s.

"He rated the WorldCom stock regularly and prior to news on Monday he downgraded it," said Peggy Peterson, a spokeswoman for the House panel. "We're interested to find out why and what he knows about the company."

Salomon stood by Grubman. "Jack continues to be an important analyst at our firm," a Salomon spokeswoman said. "Of course, we will fully cooperate with any inquiries, as is our practice."

On Wednesday, Grubman was harassed by television cameras and said he was no expert on bankruptcy.