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WorldCom:

Corporate Fraud

WorldCom Background
Huge telecommunications company
Largest in the U.S after AT&T.
Telecommunications giant
Provided:
Internet Services
Long Distance and various other
phone services for a cheaper
price than competitors.
2

WorldComs Ascension
WorldComtook the telecom industry by storm when it
began a frenzy of acquisitions in the 1990s.
From 1995 until 2000, WorldCom purchased over sixty
other telecom firms. In 1997 it bought MCI for $37
billion.
WorldCom moved into Internet and data
communications, handling 50 percent of all United
States Internet traffic and 50 percent of alle-mails
worldwide.
By 2001, WorldCom owned one-third of all data cables
in the United States. In addition, they were the
second-largest long distance carrier in 1998 and 2002.
4

THE SCANDAL
They classified over $3.8billion in
payments for line costs as capital
expenditures rather than current
expenses.
Irregularities in the reserve
accounts.
SEC claims that the total for
fraudulent accounting comes to $9
billion dollars.
5

WorldComs fall
The company began to fall in 1999
with massive lay offs and the steady
decline of its stock price.
Stock prices for WorldCom were
around 60 dollars and dropped to
pennies in 2002 giving sleepless
nights to investors.
Business sector mergers were
unsuccessful.
6

The stock price had fallen from around 60$


in 1999 to $1 in 2002
7

Upper Management

Chief Financial Officer Scott Sullivan and


Controller David Myers arrested.
Myers pleads guilty to three counts of
conspiracy
Chief Executive John W. Sidgmore steps
aside from his post
Buford Yates Jr. pleads guilty to two counts
of securities fraud and conspiracy
Betty L. Vinson and M. Normand, former
finance officials, are charged with conspiracy.
Six other WorldCom directors resign on
December 18th
8

Government Involvement

Despite conspiracy charges and uncovered


financial fraud the government still keeps
WorldComs eligibility to file for
bankruptcy.
The U.S. gives $2 billion dollars in assets to
tap.
$20 million dollars over the span of three
years given to new CEO
WorldCom still allowed to oversee
government projects

Impact
Overall investor distrust with
companies undergoing similar
problems.
National feeling that the stock
market is not as safe as previously
thought.
SEC forced to keep a closer look
on auditor and accountant dealings.
10

Post-Fraud Happenings
WorldCom was renamed MCI in 2004
when it emerged from bankruptcy.
Company could spin off several
business units.
Added additional board members to
serve on a special investigative panel
to review accounting practices.
WorldCom may write off $50.6 billion
in intangible assets.
WorldCom is trying to secure loans.
17,000 jobs cut to save $1 billion.
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Ethical Values Violated

Unethical Work Culture


Pressurising employees to manipulate accounts
No productive outlet for employee dissent
Employees who played along were rewarded;
others were threatened.
Fudged up the accounts; mislead the various
stakeholders

BERNARD EBBERS
Graduation & Doctorate
from Mississippi college
Build the biggest telecom
industry in US within 15
years.
Bankrupt within 4 years
Imprisonment of 25 years
in charge of fraud.

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