WorldCom:WorldCom:Corporate FraudCorporate Fraud

Amanda BarnesAmanda Barnes

Catherine CollinsCatherine Collins

Lamar JamisonLamar Jamison

WorldCom BackgroundWorldCom Background

Huge telecommunications Huge telecommunications companycompany

Largest in the U.S.Largest in the U.S. Held responsible for waking up Held responsible for waking up

it’s somewhat sluggish industry in it’s somewhat sluggish industry in the early 90’sthe early 90’s

IndustryIndustry

Telecommunications giantTelecommunications giant Provided:Provided:

– Internet ServicesInternet Services– Long Distance and various other Long Distance and various other

phone services for a cheaper price phone services for a cheaper price than competitorsthan competitors

WorldCom’s AscensionWorldCom’s Ascension

AT&T monopoly break-upAT&T monopoly break-up CEO Bernie Ebbers repackages CEO Bernie Ebbers repackages

leftovers and sells them at a leftovers and sells them at a bargain price.bargain price.

Broadened services available.Broadened services available.

WorldCom’s AscensionWorldCom’s Ascension

75 mergers and acquisitions of 75 mergers and acquisitions of smaller companies.smaller companies.

Bought competitor MCI.Bought competitor MCI. Attempted to buy Sprint in 2000.Attempted to buy Sprint in 2000. Anti-trust regulations wouldn’t Anti-trust regulations wouldn’t

allow Sprint acquisition.allow Sprint acquisition.

WorldCom’s FallWorldCom’s Fall

The company began to fall in The company began to fall in 1999 with massive lay offs and 1999 with massive lay offs and the steady decline of it’s stock the steady decline of it’s stock price.price.

Stock prices for WorldCom were Stock prices for WorldCom were around 60 dollars and dropped to around 60 dollars and dropped to pennies in 2002.pennies in 2002.

Business sector mergers were Business sector mergers were unsuccessful.unsuccessful.

Stock PriceStock Price

Bernie EbbersBernie Ebbers

Founder of Founder of WorldComWorldCom

Aggressive Aggressive businessman who businessman who seemed to be the seemed to be the fire for WorldCom's fire for WorldCom's success.success.

Fed new ideas into Fed new ideas into the company for the company for expansionexpansion

Bernie EbbersBernie Ebbers

Resigned after allegedly using Resigned after allegedly using funds from his company to cover funds from his company to cover his losses from his stock holdingshis losses from his stock holdings

This brought into question the This brought into question the supposed “earnings” for supposed “earnings” for WorldCom's 2002-2004 fiscal WorldCom's 2002-2004 fiscal years.years.

Various ScandalsVarious Scandals

Many companies under the eye of Many companies under the eye of the government after financial the government after financial scandals such as Enron surfaced.scandals such as Enron surfaced.

WorldCom watched closely WorldCom watched closely because of it’s shaky future because of it’s shaky future outlookoutlook

Accountants everywhere under Accountants everywhere under speculation at major corporations.speculation at major corporations.

Financial AccountantsFinancial Accountants

Accounting firms and auditors for Accounting firms and auditors for companies are in charge of a companies are in charge of a company’s financial reports.company’s financial reports.

They must know the federal They must know the federal regulations for reporting earnings regulations for reporting earnings and such so that no figures are and such so that no figures are misrepresented.misrepresented.

AccountingAccounting

Help companies answer these Help companies answer these questions:questions:– how much they made how much they made – how much they can savehow much they can save– how much they should pay in how much they should pay in

government taxesgovernment taxes– how much they can use for other how much they can use for other

things (expansion, dividends, etc.) things (expansion, dividends, etc.)

The ScandalThe Scandal

In July 2004, Congress is notified by In July 2004, Congress is notified by Scott D. Sullivan of financial mistakesScott D. Sullivan of financial mistakes

August 9August 9thth WorldCom’s auditors WorldCom’s auditors uncover $3.8 billion dollars in uncover $3.8 billion dollars in improper accountingimproper accounting

SEC claims that the total for SEC claims that the total for fraudulent accounting comes to $9 fraudulent accounting comes to $9 billion dollars and dates back to billion dollars and dates back to 1999.1999.

The ScandalThe Scandal

Banking firm awards WorldCom Banking firm awards WorldCom execs with IPO stock based on the execs with IPO stock based on the false earnings they reported.false earnings they reported.

WorldCom executives reaped WorldCom executives reaped massive gains from these IPO massive gains from these IPO stocks.stocks.

Both Bernie Ebbers and Scott Both Bernie Ebbers and Scott Sullivan received shares.Sullivan received shares.

Upper ManagementUpper Management

Chief Financial Officer Scott Sullivan Chief Financial Officer Scott Sullivan and Controller David Myers arrested.and Controller David Myers arrested.

Myer’s pleads guilty to three counts of Myer’s pleads guilty to three counts of conspiracyconspiracy

Chief Executive John W. Sidgmore Chief Executive John W. Sidgmore steps aside from his poststeps aside from his post

Buford Yates Jr. pleads guilty to two Buford Yates Jr. pleads guilty to two counts of securities fraud and counts of securities fraud and conspiracyconspiracy

Upper ManagementUpper Management

Betty L. Vinson and M. Normand, Betty L. Vinson and M. Normand, former finance officials, are former finance officials, are charged with conspiracy.charged with conspiracy.

Six other WorldCom directors Six other WorldCom directors resign on December 18thresign on December 18th

Government Government InvolvementInvolvement Despite conspiracy charges and Despite conspiracy charges and

uncovered financial fraud the uncovered financial fraud the government still keeps government still keeps WorldCom’s eligibility to file for WorldCom’s eligibility to file for bankruptcy.bankruptcy.

The U.S. gives $2 billion dollars in The U.S. gives $2 billion dollars in assets to tapassets to tap

Government Government InvolvementInvolvement $20 million dollars over the span $20 million dollars over the span

of three years given to new CEOof three years given to new CEO WorldCom still allowed to oversee WorldCom still allowed to oversee

government projectsgovernment projects

Impact on the Impact on the Financial WorldFinancial World

ImpactImpact

Overall investor distrust with Overall investor distrust with companies undergoing similar companies undergoing similar problems.problems.

National feeling that the stock National feeling that the stock market is not as safe as previously market is not as safe as previously thought.thought.

SEC forced to keep a closer look on SEC forced to keep a closer look on auditor and accountant dealingsauditor and accountant dealings

EmploymentEmployment

WorldCom forced to lay off 17,000 WorldCom forced to lay off 17,000 workers in order to cut costs.workers in order to cut costs.

Another 3,000 expected to be cut in Another 3,000 expected to be cut in the next few monthsthe next few months

One employer is given a settlement One employer is given a settlement after suing the company for pain after suing the company for pain and suffering and monetary loss.and suffering and monetary loss.

ConclusionConclusion