Worldcom 2
The WorldCom Fraud
© 2003, 2005 by the AICPA
This presentation is intended for use in higher education for instructional purposes only, and is not for application in practice. Permission is granted to classroom instructors to photocopy this document for classroom teaching purposes only. All other rights are reserved. Copyright © 2003, 2005 by the American
Institute of Certified Public Accountants, Inc., New York, New York.
WorldCom’s Background
• Awoke the sleeping giant by leading the telecom industry into profitability in the 90’s.
• Telecom industry faced low margins and Bernie Ebbers decided growth=survival
• During the 1990’s, WorldCom was deeply involved in acquisitions and completed several “mega-deals”
• Purchased over 60 firms in 2nd half of the 90’s
• WorldCom moved into Internet and data traffic
– Handled 50% of US Internet traffic
Handled
© –2003,
2005 by50% the of e-mails worldwide
AICPA
WorldCom’s Background
(con’t)
• Purchased MCI for $37 billion in 1997
– Not allowed to purchase Sprint in 2000 because of antitrust regulation. • In 1999 revenue growth halted; stock price dropped
• By 2001 owned a third of the US data cables
• Was U.S.’ 2nd largest long-distance operator in 1998 and
2002
• Had over 20 million customers in 2002
© 2003, 2005 by the
AICPA
Bernard Ebbers, CEO
• Borrowed $366 million to cover losses on stock which was not repaid
• Secured loans from WorldCom to fund personal investments
including a $100 million Canada ranch, $658 million in Mississippi timberlands and a $14 million Georgia shipyard
• Netted $140 million from stock sales
• Facing dismissal, he resigned from WorldCom on April 30, 2002
Bernie Ebbers classic resignation statement: "I am confident that WorldCom will continue to lead the industry, setting the standards others will follow.”
© 2003, 2005 by the
AICPA
Scott Sullivan, CFO
• Served as CFO, treasurer and
secretary
• Directed staff to make false accounting entries
• Personally made false and
© 2003, 2005 by the AICPA
This presentation is intended for use in higher education for instructional purposes only, and is not for application in practice. Permission is granted to classroom instructors to photocopy this document for classroom teaching purposes only. All other rights are reserved. Copyright © 2003, 2005 by the American
Institute of Certified Public Accountants, Inc., New York, New York.
WorldCom’s Background
• Awoke the sleeping giant by leading the telecom industry into profitability in the 90’s.
• Telecom industry faced low margins and Bernie Ebbers decided growth=survival
• During the 1990’s, WorldCom was deeply involved in acquisitions and completed several “mega-deals”
• Purchased over 60 firms in 2nd half of the 90’s
• WorldCom moved into Internet and data traffic
– Handled 50% of US Internet traffic
Handled
© –2003,
2005 by50% the of e-mails worldwide
AICPA
WorldCom’s Background
(con’t)
• Purchased MCI for $37 billion in 1997
– Not allowed to purchase Sprint in 2000 because of antitrust regulation. • In 1999 revenue growth halted; stock price dropped
• By 2001 owned a third of the US data cables
• Was U.S.’ 2nd largest long-distance operator in 1998 and
2002
• Had over 20 million customers in 2002
© 2003, 2005 by the
AICPA
Bernard Ebbers, CEO
• Borrowed $366 million to cover losses on stock which was not repaid
• Secured loans from WorldCom to fund personal investments
including a $100 million Canada ranch, $658 million in Mississippi timberlands and a $14 million Georgia shipyard
• Netted $140 million from stock sales
• Facing dismissal, he resigned from WorldCom on April 30, 2002
Bernie Ebbers classic resignation statement: "I am confident that WorldCom will continue to lead the industry, setting the standards others will follow.”
© 2003, 2005 by the
AICPA
Scott Sullivan, CFO
• Served as CFO, treasurer and
secretary
• Directed staff to make false accounting entries
• Personally made false and