...With the help of Mr Sullivan's financial engineering Mr Ebbers raced the business - now called WorldCom - through 70 deals in four years, buying up competitors and expanding his reach. Along the way the company picked up numerous fans on Wall Street, perhaps most notably Jack Grubman, a telecoms analyst at the prestigious investment bank Salomon Smith Barney. Like many analysts of the time, Mr Grubman believed that to succeed in the new era of the internet and the world wide web companies needed to create telecoms networks that spanned the globe - a goal that could only be achieved with serious financial backing. Mr Ebbers had no trouble finding people willing to give him a hand. Usually sober bankers and investment analysts were entranced by his plain-speaking manner and as the company grew its share price defied gravity. Using its valuable shares as bargaining chips and backed up by piles of debt, Mr Ebbers snatched up businesses across the US and waded into Europe. Its acquisitions included UUNet, one of the oldest carriers of internet traffic, which is still a major provider to AOL. WorldCom also sealed what at the time was the biggest deal the US stock market had seen, snatching another US communications group, MCI, from the clutches of BT. That $40bn merger in 1998 gave WorldCom an effective stranglehold on the US internet market, forcing the sale of part of MCI to another British firm, Cable & Wireless. In the deal C&W picked up a piece of internet history...
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...summer 2002 WorldCom, the fastest rising company in the US history with its CEO of 17 years Bernard Ebbers was busted for fraudulent financial activities (American Greed, 2008). The history of the company dates back to 1983 when Long Distance Discount Services (LDDS) was founded. The company was providing long distance calling for cheap by doing acquisitions and buying smaller phone companies (American Greed, 2008). Bernard Ebbers was company’s CEO and within 10 years he was able to make LDDS into the largest telecom company with a revenue of US 6 billion (American Greed, 2008). In 1998, Ebbers performed the biggest merger by buying out MCI. Company’s name was changed to WorldCom to reflect its size and capacity. In 1999 WorldCom’s performance was at its highest peak, with its stock at US 68 per share (American Greed, 2008). Ebber’s main strategies as CEO of WorldCom were: aggressive acquisitions; and cost control by “hammering off pennies” (American Greed, 2008). Even though Ebbers was cutting costs at WorlCom by refusing to provide free coffee to his employees, he was splurging extensively. In the late 90’s, Ebbers bought a percent of hockey team, not only he owned several yachts but he also bought yachts building company, he purchased a biggest ranch in the US, timberland, crawfish company, golf course, etc. Money for these purchases came from Ebbers’ personal loans from JPMorgan and Citi bank and totaled US 408 million. Ebbers secured the loans with WorldCom stock (American...
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...Organizational Leadership LDR 531 Group Number: SC09MBA10 G. Edward McCullough, M.A. March 25, 2010 Examining a Business Failure: WorldCom Why do businesses fail? Most business corporations experience company failure because of their lack of organizational leadership and unethical practices, which can consist of fraud, conspiracy, falsifying documents, and embezzlement. An example of a business failure is most recognized by the WorldCom (2002) bankruptcy scandal. Many organizational behavior (OB) theories as it relates to leadership, management, and organizational structure can give in site to explain the company’s failure. Most blame for the WorldCom scandal was placed in its founder and CEO Bernard Ebbers due to his unruly managerial functions (planning, organizing, leading and controlling) that he practiced during his time at WorldCom. WorldCom was known as a telecommunication giant, established from nothing in 1983 to become the biggest accounting scandal in United States (U.S.) history in 2002. According to Jones Jonesington (2007) says, “In 1998, the telecommunications industry began to slow down and WorldCom’s stock was declining which gave CEO Bernard Ebbers increased pressure from banks to cover margin calls on his WorldCom stock that was used to finance his other businesses endeavors (timber, yachting etc.).”(Jonesington, J., 2007) WorldCom took another big hit in 2000 when it was forced to abandon its merger with Sprint, says Jonesington. (Jonesington, J., 2007) ...
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...Chad Ducharme Macroeconomics What do Enron, Tyco, and World-com have in common Intro The purpose of this work is to show you what happens when you try to cheat the system. the reason the government does audits and checks for so many frauds is because people nowadays will do whatever it takes to make a little extra money. What these companies did not only hurt themselves in the long run but hurt the millions of workers and families that were connected with them. The Companies Enron was formed in 1985 by two gas companies, Houston Natural Gas and Nebraska InterNorth.Enron incurred massive debt and, as the result of deregulation, no longer had exclusive rights to its pipelines. In order to survive, the company had to come up with a new and innovative business strategy to generate profits and cash flow. To try to fix this Enron came up with the idea of becoming a “gas bank” to try to fix its problems. They would buy gas from a network of suppliers and sell it to a network of consumers, contractually guaranteeing both the supply and the price, charging fees for the transactions and assuming the associated risks. This became so successful that they decided to apply this to other things instead of just gas like, coal, paper, steel, water and even weather. In 2001 CEO Kenneth Lay retired and named Jeffrey Skilling president and CEO of Enron. On October 16th 2001 They reported their first quarterly loss in over four years and went downhill until the company filed for bankruptcy...
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...Communications acquired MCI/WorldCom and SBC Communications acquired AT&T Corporation, which had been in business since the 19th Century. The acquisition of MCI/WorldCom was the direct result of the behavior of WorldCom's senior managers as documented above. While it can be argued that the demise of AT&T Corp. was not wholly attributable to WorldCom's behavior, AT&T Corp.'s decimation certainly was facilitated by the events surrounding WorldCom, since WorldCom was the benchmark long distance telephone and Internet communications service provider. Indeed, the ripple effect of WorldCom's demise goes far beyond one company and several senior managers. It had a profound effect on an entire industry. 2.0 Introduction Between July 2002 when WorldCom declared bankruptcy and April 2004 when it emerged from bankruptcy as MCI, company officials worked feverishly to restate the financials and reorganize the company. The new CEO Michael Capellas (formerly CEO of Compaq Computer) and the newly appointed CFO Robert Blakely faced the daunting task of settling the company's outstanding debt of around $35 billion and performing a rigorous financial audit of the company. This was a monumental task, at one point utilizing an army of over 500 WorldCom employees, over 200 employees of the company's outside auditor, KPMG, and a supplemental workforce of almost 600 people from Deloitte & Touch. As Joseph McCafferty notes, "(a)t the peak of the audit, in late 2003, WorldCom had about 1,500 people...
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...Team Case Assignment #1: WorldCom (Due Date: Monday, September 14) Bernard “Bernie” Ebbers and other founders started Long Distance Discount Service, a small Mississippi reseller of long-distance service. LDDS changed its name to WorldCom Inc., with Ebbers as CEO. WorldCom provides a broad range of communications services to both US and non-US based business and consumers. The company’s core business is communications services, which include voice, data, Internet and international services. WorldCom Stock peaked at $64.50 in 1999. During the second quarter of 2002 (June 25, 2002), WorldCom announced that line costs totaling $3.9 billion had been improperly capitalized in five preceding quarters which overstated pre-tax earnings by the same amount. The SEC filed fraud charges against WorldCom the next day. WorldCom shares fell to less than to $1. In July 2002, WorldCom filed for Chapter 11 bankruptcy protection, the largest bankruptcy in U.S. history. Subsequently, former WorldCom chief financial officer Scott Sullivan and controller David Myers were arrested on securities fraud and conspiracy charges. Ebbers was indicted on federal charges in the accounting scandal. In March 2005, Ebbers was found guilty on all charges and was sentenced for 25 years in prison. Required: - Submit a hard copy of the case assignment in the beginning of class on the due date (Monday, September 14). Include a cover page with your section number (Track 1 or Track 2) and assigned team...
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...Executive Summary In this case of accounting fraud at WorldCom, we have identified problems which had grew as the business scale of WorldCom (formerly known as LDDS) expanded, its direction of business started to drift away when its attempt to merge with Sprint was terminated by the U.S. Justice Department and the telecommunication industry started to deteriorate in 2000. The managers, particularly Bernard J. Ebbers and Scott Sullivan, struggled to maintain the company's main performance indicator, the Expense-to-Revenue (E/R) ratio in order to maintain its lucrative image. As the size of the organization increase through extensive mergers and acquisitions, the corporate culture of the company was all jumbled up and there were no uniformity in the management policies in each department. Furthermore, the company's focus on building revenue and disregarding the long-term costs had caused the company burdensome amount of expenses. While the telecommunication industry decline, the managers was forced to use extremity to sustain the good image of the business, thus started to manipulate the accounts, specifically through the release of accruals and capitalization of costs. The conduct was performed through monarch orders by the top management commanding the General Accounting Department to manipulate the accounts, restricting the scope of inquiry of the Internal Audit Department, misleading the External Auditor and also the Board of Directors. Executive Summary Table of Contents ...
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...WorldCom’s Fall From Grace Kenneth L. Fox LDR/531Organizational Leadership January 25, 2010 Leo Maganares Abstract WORLDCOM’S FALL FROM GRACE A review of WorldCom’s financial demise highlights numerous incidents of fraud, manipulation of billing procedures, purchasing of equipment that never arrived, and countless other unethical practices. Top executives at WorldCom were convicted for the corruption that finally bought the telecommunications company down. However, the exposure of WorldCom revealed weak internal controls and a lack of effective organ- izational structure and civility that seem to be present in other top companies. WorldCom organizational behavior theories could have predicted or even explain the failure of WorldCom . Additionally, I will offer perspectives on the comparisons and contrasts of leadership, management, and organizational structures and their contributions to the company’s collapse. pursuit of profits with humanitarian goals and social responsibility. How a company is Com suggests that money and profits were the core values. The behaviors displayed by employees and top management executives demonstrated that a culture of corruption was tools to cultivate organizational behavior were implemented. and focused on individuals, groups, and the structure of it company. Theories and concepts to analyze and describe human behavior and promote healthy attitudes are tools that provide...
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...WorldCom: The Scandal that Shocked the Nation By: Eric Dixon FSAAC_624_OL2 November 23, 2011 Professor Stephen Oliner Table of Contents Executive Summary…………………………………………………………Page 2 Corporate Environment……………………………………………………...Page 4 Types of Fraud Committed.…………………………………………………Page 5 Board of Directors Responsibility…………………………………………...Page 6 Internal Auditors Responsibility…………………………………………….Page 7 Conflicts of Interest………………………………………………………….Page 7 Collusion…………………………………………………………………….Page 8 Complicity of Auditors and Investment bankers …………………………...Page 9 Sarbanes Oxley-Act……………………………………………………….....Page 9 Recommendations……………………………………………………………Page 10 Re-establishing WorldCom………………………………………………….Page 11 Glossary………………………………………………………………...……Page 12 Appendix…………………………………………………………………….Page 13 Web Site Resource Summary……………………………………………......Page 14 Executive Summary In the late 1990’s WorldCom was regarded as one of the largest long distance phone companies. WorldCom stormed and dominated the telecommunication industry by completing sixty-five significant mergers and acquisitions. These mergers put WorldCom in debt of $41 billion dollars, which the Board of Directors was unaware of. By obtaining these companies WorldCom made themselves a favorite on Wall Street and to numerous investment bankers. Management didn’t know the complications that would arise when trying to integrate several different billing systems. Chief Executive Officer Mr. Ebbers kept...
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...WorldCom history The history of WorldCom Company dates back in 1983 which started as a partnership between a former basketball coach Bernard Ebbers. This company was established at Mississippi as a coffee shop, which later developed to long distance Telephone Company. The company’s name initially was Long Distance Discount Service whose operations began on 1984. After several years in operation, the company became public in August 1989 with Bernard Ebbers as the company’s CEO (Moberg 4). Over the years, the company developed through mergers and acquisitions and becomes public in the year 1989. The notable merge which enabled the company to go public was the merger with the advantage companies Inc. This led to changing of the name from just LDDS to LDDS WorldCom in 1995 and to just WorldCom a year later (Moberg 4). In 1993, the company acquires long distance providers in the name of Resurgence Communications Group and Metromedia communications. This made history as the fourth largest long distance communication firm in United States. There were also several other mergers and acquisitions such as with IDB in 1994, WilTel in 1995, MFS communications in 1996, and the greatest merger which involved MCI communications. In 1998, WorldCom completed the merger with MCI at a cost estimated to be $40 billion. This was viewed as the greatest merger after brooks fiber properties and CompuServe which were valued at $ 1.2 and $ 1.3 billion respectively (Moberg 6). Another notable aspect...
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...WorldCom – A Business Failure Austin W. Anderson Organizational Leadership, LDR/531 12 May 2012 Alan Klingsieck WorldCom WorldCom was founded as the Long Distance Discount Services, LTD (LDDS) in 1983, and was based in Hattiesburg, Mississippi. In 1985, Bernard Ebbers was selected as its chief executive. The company went public in 1989 and merged with Advantage Companies, Inc. In 1985, the company’s name was changed to WorldCom. In 1999, as the CEO of WorldCom, Bernard Ebbers was Number 174 on Forbes magazine’s list of the 400 richest Americans, with an estimated net worth of $1.4 billion (WSJ.com). In 1998, the telecommunications industry began to decline and WorldCom’s stock was declining. CEO Bernard Ebbers was pressured from banks to cover the WorldCom stocks used to finance his other business endeavors (timber, yachting, etc.). The company’s profitability took another hit when it was forced to abandon its merger with Sprint in 2000. Beginning in 1999 and continuing through May 2002, WorldCom under the guidance of Scott Sullivan (CFO), David Myers (Controller), and Buford Yates (Director of General Accounting) used shady accounting methods to mask the companies declining financial condition by falsifying its financial growth and profitability. The fraud was accomplished two ways. First, the accounting department underreported line costs (interconnection expenses with other telecommunication...
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...WORLDCOM CASE ANALYSIS The WorldCom case is another example of large corporation failures where individuals in the firm failed to act in a morally correct way. Bernard Ebbers, the CEO and Scott Sullivan, the CFO, of the corporation should have been aware of the accounting processes being used in his firm (and undoubtedly he was aware) and should have taken steps to prevent others test for ethics. Authur Anderson also missed opportunities where he could have disclosed the fraud. Cynthia Cooper and her team where the first people who uncovered the major fraud that was taking place at WorldCom. Accountants at WorldCom capitalized expenses in blatant violation of generally accepted accounting principles under the pressure from above management to maintain income growth. This started when WorldCom and other telecommunication firms faced reduced demand as the boom ended and the economy entered a recession. The revenues fell but the debt remained. The profit market value of the company also decreased. Fraud arose through the accounting department and secondly the company inflated revenues with fraudulent accounting entries from corporate unallocated revenue accountants. WorldCom reduced the amount of money held in reserves by $2.8 billion. They then moved the money into revenue line of its financial statements and then classified operating as their long term capital investments and consequently turned their losses into profits. They also made the assets appear more valuable. Revenue...
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...WorldCom, a Hattiesburg, Mississippi based company began as Long Distance Discount Service Inc. (LDDS). In 1989 through a merger with Advantage Companies Inc., went public. Becoming LDDS WorldCom in 1995 then changed to WorldCom. In 2000, the company suffered serious setback, the industry downturned forcing abandonment of its proposed merger with Sprint. WorldCom’s stock prices declined, the CEO was pressured to cover margin calls from the banks on WorldCom stock that was used to finance other businesses. This scheme failed and the CEO gone, a new CEO was appointed. To mask the decline in earning and ensure the company was portrayed as a growing profitable company, used fraudulent accounting methods. Firstly, interconnection expenses were recorded as capital instead of expenses and secondly using bogus accounting entries from corporate unallocated revenue accounts, the company inflated its revenues, around $11 billion by the end of 2003. As the accountant for WorldCom, I would have recorded such disbursements as operating costs; the procedure used was unethical. Had the company insisted the procedures be recorded in such a manner, I would have no choice but to alert the necessary authorities as this was a serious violation of accounting ethics. The consequences for WorldCom resulted in the company defaulting on bank agreements, loans being subject to immediate payment. The reputation of the company was in question, affecting the profits of the company, making it...
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...WorldCom Case Study Update 20061 by Edward J. Romar, University of Massachusetts-Boston, and Martin Calkins, University of Massachusetts-Boston In December 2005, two years after this case was written, the telecommunications industry consolidated further. Verizon Communications acquired MCI/WorldCom and SBC Communications acquired AT&T Corporation, which had been in business since the 19th Century. The acquisition of MCI/WorldCom was the direct result of the behavior of WorldCom's senior managers as documented above. While it can be argued that the demise of AT&T Corp. was not wholly attributable to WorldCom's behavior, AT&T Corp.'s decimation certainly was facilitated by the events surrounding WorldCom, since WorldCom was the benchmark long distance telephone and Internet communications service provider. Indeed, the ripple effect of WorldCom's demise goes far beyond one company and several senior managers. It had a profound effect on an entire industry. This postscript will update the WorldCom story by focusing on what happened to the company after it declared bankruptcy and before it was acquired by Verizon. The postscript also will relate subsequent important events in the telecommunications industry, the effect of WorldCom's problems on its competitors and labor market, and the impact WorldCom had on the lives of the key players associated with the fraud and its exposure. From Benchmark to Bankrupt Between July 2002 when WorldCom declared bankruptcy and April...
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...WorldCom WorldCom was a telecommunications giant that failed and was forced into bankruptcy. WorldCom was America’s second-largest long-distance telephone company and was the largest mover of internet traffic. The company started as a small-town Mississippi company that behemoth more than sixty acquisitions in the span of fifteen years (Trans). WorldCom managed to commit the largest accounting FRAUD in history. Bernard Ebbers, WorldCom’s CEO, 63 years old, was convicted of orchestrating this 11 million dollar accounting FRAUD and was sentenced to 25 years in prison (Stefano). A major economic problem WorldCom was confronted with was the vast oversupply in the nation’s growth of telecommunication’s capacity. They were overly optimistic in terms of the growth of the internet. WorldCom and other telecommunication companies fell short because at this time there was a reduced demand for the internet. The economy went into a recession. As the STOCK MARKET fell, their INCENTIVE to engage in the FRAUDELENT accounting practices was on the rise. In mid-year 1999, beginning modestly but continuing at an accelerated pace through May 2002, under the direction of Bernie Ebbers (CEO) and Scott Sullivan (CFO) were using fraudulent accounting practices to hide the facts that their profitability and growth were declining in order to “up” the prices of WorldCom’s STOCK (The WorldCom Fraud). “The report says WorldCom has claims of FIDUCIARY DUTIES of LOYALTY AND GOOD FAITH against Mr. Ebbers because...
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