WorldCom was a large telecommunications company that grew through acquisitions in the 1990s. In 2002, it filed for the largest bankruptcy in US history after an $11 billion accounting fraud was uncovered. Executives had improperly capitalized line costs to inflate earnings. Thousands of employees lost their jobs. The CEO Bernard Ebbers was convicted of fraud and sentenced to 25 years in prison. The fraud and bankruptcy resulted in $180 billion in shareholder losses.

1. WorldCom:Corporate FraudByB Ajay(dm-05-06) D karthik (dm-05-17) P Naresh (dm-05-42) P Raghavender (dm-05-47)

2. profileHuge telecommunications companyLargest in the U.S.Held responsible for waking up it’s somewhat sluggish industry in the early 90’sTelecommunications giantProvided:Internet ServicesLong Distance and various other phone services for a cheaper price than competitors

3. Mergers and acquisitions75 mergers and acquisitions of smaller companies.Bought competitor MCI.Attempted to buy Sprint in 2000.Anti-trust regulations wouldn’t allow Sprint acquisition

4. scandelIn July 2004, Congress is notified by Scott D. Sullivan of financial mistakesAugust 9th WorldCom’s auditors uncover $3.8 billion dollars in improper accountingSEC claims that the total for fraudulent accounting comes to $9 billion dollars and dates back to 1999Banking 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 sharesEmployees lost jobsHOW THIS HAPPENThe 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.

5. HOW ENDEDOn 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

6. impactShareholders:$180b of shareholder value lost(based on peak stock price)Debt & prefered stock holders:$37.5b of debt and prefered stock value lostCompany: $750m settelment have to pay to secEmployes: 57,000 employees lost there jobBoard of directors :12 directors agreed to pay 120

7. Why good managers made a bad ethical choicesBelieve that the activity is really”illegalBelieve that it is in the individual’s or corporation’s best interestBelieve that it will never be found outBelieve that the company will condone actions that are taken in its interest and will protect the managers responsible

8. Board of Directors12 Directors agreed to pay (out of pocket) a total of $25M to settle securities class action caseInvestment BankersSettlement of securities class action case with banks:Citi Group $2.6BJP Morgan 2.0BB of A .5BOther .9B

9. SEC Action:Grubman an Soloman Brothers Securities Analyst fined $15M and banned for life from practice.