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World com

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World com

  1. 1. WorldCom:Corporate Fraud<br />By<br />B Ajay(dm-05-06)<br /> D karthik (dm-05-17)<br /> P Naresh (dm-05-42)<br /> P Raghavender (dm-05-47)<br />
  2. 2. profile<br />Huge telecommunications company<br />Largest in the U.S.<br />Held responsible for waking up it’s somewhat sluggish industry in the early 90’s<br />Telecommunications giant<br />Provided:<br />Internet Services<br />Long Distance and various other phone services for a cheaper price than competitors<br />
  3. 3. Mergers and acquisitions<br />75 mergers and acquisitions of smaller companies.<br />Bought competitor MCI.<br />Attempted to buy Sprint in 2000.<br />Anti-trust regulations wouldn’t allow Sprint acquisition<br />
  4. 4. scandel<br />In July 2004, Congress is notified by Scott D. Sullivan of financial mistakes<br />August 9th WorldCom’s auditors uncover $3.8 billion dollars in improper accounting<br />SEC claims that the total for fraudulent accounting comes to $9 billion dollars and dates back to 1999<br />Banking firm awards WorldCom execs with IPO stock based on the false earnings they reported.<br />WorldCom executives reaped massive gains from these IPO stocks.<br />Both Bernie Ebbers and Scott Sullivan received shares<br /><ul><li>Employees lost jobs</li></li></ul><li>HOW THIS HAPPEN<br />The fraud was accomplished in two main ways. First, WorldCom's accounting department underreported 'line costs' (expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them. Second, the company inflated revenues with bogus accounting entries from corporate unallocated revenue accounts. <br />
  5. 5. HOW ENDED<br />On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection, the largest such filing in United States history. The company emerged from Chapter 11 bankruptcy in 2004 becoming MCI. On March 15, 2005 Bernard Ebbers (CEO) was found guilty of all charges and convicted on fraud, conspiracy and filing false documents with regulators. He was sentenced to 25 years in prison<br />
  6. 6. impact<br />Shareholders:$180b of shareholder value lost(based on peak stock price)<br />Debt & prefered stock holders:$37.5b of debt and prefered stock value lost<br />Company: $750m settelment have to pay to sec<br />Employes: 57,000 employees lost there job<br />Board of directors :12 directors agreed to pay 120<br />
  7. 7. Why good managers made a bad ethical choices<br />Believe that the activity is really”illegal<br />Believe that it is in the individual’s or corporation’s best interest<br />Believe that it will never be found out<br />Believe that the company will condone actions that are taken in its interest and will protect the managers responsible<br />
  8. 8. Board of Directors<br />12 Directors agreed to pay (out of pocket) a total of $25M to settle securities class action case<br />Investment Bankers<br />Settlement of securities class action case with banks:<br />Citi Group $2.6B<br />JP Morgan 2.0B<br />B of A .5B<br />Other .9B<br />
  9. 9. SEC Action:<br />Grubman an Soloman Brothers Securities Analyst fined $15M and banned for life from practice.<br /> <br />

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