By Heshani Makalande, Nahee Kim and Yutong Ouyang

Formation:

  • It was an American telecommunication company founded in 1963
  • The corporation was purchased by Verizon Communications after its bankruptcy in the year 2006
  • Formerly known as LDDS and WorldCom
  • The corporation is currently operating as MCI Inc

Timeline:

  • 1985:- investor Bernard Ebbers becomes the CEO
  • 1995:- LDDS acquires WilTel Inc for $2.5 billion and changed its name to WorldCom Inc
  • 1998:- WorldCom completes three mergers

MCI Communications Corporation ($40 billion)

Brooks Fiber Properties Inc ($1.2 billion)

CompuServe Corp ($1.3 billion)

  • 2002:-
  • CEO Bernard Ebbers resign, vice chairman John Sidgmore reins

Fires Scott Sullivan (CFO)

SEC files fraud charges against W.C

EX-CFO Sullivan and former controller David Myers are arrested and were found guilty

  • 2003:-

Changes its name to MCI and appoints Robert Blakely as (CFO)

Settles SEC charges

First criminal charges against (F.CEO) Ebbers

 

People Involved:

Bernard Ebbers

  • He is a Canadian born businessman
  • Former WorldCom CEO in U.S.
  • Co-founder of WorldCom 1995
  • Manipulating an $11 billion accounting fraud
  • Sentenced to 25 years in prison

Cynthia Cooper

  • Vice President of Internal Audit at WorldCom
  • Found out the accounting fraud in WorldCom

Scott D. Sullivan

  • Chief Financial Officer, Treasurer, Board member and Secretary
  • Performed WorldCom’s $11-billion accounting fraud
  • Sentenced to five years in Jail

The Accounting Scandal:

  • Biggest accounting fraud in U.S history after Enron
  • In 2005: Nine Counts

◦      One count of conspiracy

◦      One count of securities fraud

◦      Seven counts of filing false statement with securities regulator

  • Improperly accounted for more than $3.8 billion of expenses
  • Laid off 17,000 workers within the week

Stocks:

  • In 2002, Stock started to decline

◦      Falling of earnings in 2000’s

◦      Ebbers’ enormous personal debts

( WorldCom board loans him $375 million US)

◦      Accounting Fraud

◦      Stocks free-fall (dropped more than 95%)

◦      Peak more than $80 to almost nothing

Bankruptcy:

  • On July 21, 2002, after revealing actual condition of the WorldCom, the company files for the largest bankruptcy in corporate history in a month
  • Reported more than $107 billion in asset and $41 billion in debt

 

Impact on the accounting profession

Sarbanes- Oxley Act

  • It is a United States federal law established on July 30, 2002
  • The Sarbanes-Oxley Act is enforceable
  • It improve criterion for all American public company boards, management and public accounting firms

Public Company Accounting Oversight Board (PCAOB)

  • It is created due to many weighty accounting scandals
  • PCAOB goals promoting ‘informative, fair, independent audit reports’.
  • Any accounting firm that audit a public company must register under the PCAOB
  • PCAOB has power to investigate accounting infractions

Future Outlook

  • Form a separate audit committee apart from the company’s management and the company’s auditors to oversee the company’s financial management
  • In the long run, the company’s share prices would be undervalued, therefore the company should focus on building trust within the investors

 

Works Cited:

CBC News Online.(2006). The WorldCom story. March 28,2011,
<http://www.cbc.ca/news/background/worldcom/>

Dennis M and Edward R. WorldCom. March 28, 2011.<http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html>

Erika Johansen. “Role of the Public Company Accounting Oversight Board”. Ehow.com. March 26, 2011 http://www.ehow.com/about_6547956_role-company-accounting-oversight-board.html

Fox News.com. MCI-WorldCom Timeline. 2005. March 29, 2011.http://www.foxnews.com/story/0,2933,150521,00.html

Luisa B. (2002). WorldCom files largest bankruptcy ever. March 30,2011.<http://money.cnn.com/2002/07/19/news/worldcom_bankruptcy/>

Pulliam, Susan; Deborah Soloman. “How Three Unlikely Sleuths Exposed Fraud at WorldCom: Firm’s Own Employees Sniffed Out Cryptic Clues and Followed Hunches”. Wall Street Journal. March 25, 2011 http://www.happinessonline.org/MoralCode/LiveWithTruth/p23.htm

Simron R. and Rive A. D. A. (2002). WorldCom’s Collapse. March 30, 2011. <http://query.nytimes.com/gst/fullpage.html?res=9C04E6D81738F931A15754C0A9649C8B63>

The Sarbanes-Oxley Act. Web. 10 Mar. 2011. http://www.soxlaw.com

YouTube video http://www.youtube.com/watch?v=7g_d-phoUrU

 

 

 

 

 

 

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