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WorldCom: Corporate Fraud

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  1. WorldCom:Corporate Fraud Amanda Barnes Catherine Collins Lamar Jamison

  2. WorldCom Background • Huge telecommunications company • Largest in the U.S. • Held responsible for waking up it’s somewhat sluggish industry in the early 90’s

  3. Industry • Telecommunications giant • Provided: • Internet Services • Long Distance and various other phone services for a cheaper price than competitors

  4. WorldCom’s Ascension • AT&T monopoly break-up • CEO Bernie Ebbers repackages leftovers and sells them at a bargain price. • Broadened services available.

  5. WorldCom’s Ascension • 75 mergers and acquisitions of smaller companies. • Bought competitor MCI. • Attempted to buy Sprint in 2000. • Anti-trust regulations wouldn’t allow Sprint acquisition.

  6. WorldCom’s Fall • The company began to fall in 1999 with massive lay offs and the steady decline of it’s stock price. • Stock prices for WorldCom were around 60 dollars and dropped to pennies in 2002. • Business sector mergers were unsuccessful.

  7. Stock Price

  8. Bernie Ebbers • Founder of WorldCom • Aggressive businessman who seemed to be the fire for WorldCom's success. • Fed new ideas into the company for expansion

  9. Bernie Ebbers • Resigned after allegedly using funds from his company to cover his losses from his stock holdings • This brought into question the supposed “earnings” for WorldCom's 2002-2004 fiscal years.

  10. Various Scandals • Many companies under the eye of the government after financial scandals such as Enron surfaced. • WorldCom watched closely because of it’s shaky future outlook • Accountants everywhere under speculation at major corporations.

  11. Financial Accountants • Accounting firms and auditors for companies are in charge of a company’s financial reports. • They must know the federal regulations for reporting earnings and such so that no figures are misrepresented.

  12. Accounting • Help companies answer these questions: • how much they made • how much they can save • how much they should pay in government taxes • how much they can use for other things (expansion, dividends, etc.)

  13. The Scandal • In July 2004, Congress is notified by Scott D. Sullivan of financial mistakes • August 9th WorldCom’s auditors uncover $3.8 billion dollars in improper accounting • SEC claims that the total for fraudulent accounting comes to $9 billion dollars and dates back to 1999.

  14. The Scandal • Banking firm awards WorldCom execs with IPO stock based on the false earnings they reported. • WorldCom executives reaped massive gains from these IPO stocks. • Both Bernie Ebbers and Scott Sullivan received shares.

  15. Upper Management • Chief Financial Officer Scott Sullivan and Controller David Myers arrested. • Myer’s 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

  16. Upper Management • Betty L. Vinson and M. Normand, former finance officials, are charged with conspiracy. • Six other WorldCom directors resign on December 18th

  17. Government Involvement • Despite conspiracy charges and uncovered financial fraud the government still keeps WorldCom’s eligibility to file for bankruptcy. • The U.S. gives $2 billion dollars in assets to tap

  18. Government Involvement • $20 million dollars over the span of three years given to new CEO • WorldCom still allowed to oversee government projects

  19. Impact on the Financial World

  20. 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

  21. Employment • WorldCom forced to lay off 17,000 workers in order to cut costs. • Another 3,000 expected to be cut in the next few months • One employer is given a settlement after suing the company for pain and suffering and monetary loss.

  22. Conclusion