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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