By "spreading these large expenses over decades rather than years," WorldCom's appeared to do the impossible: "cut annual expenses, acknowledge all MCI revenue, and boost profits from the acquisition" (Moberg & Romar 2008).
Who wouldn't want to invest in such a profitable company? Investors, mislead by such accounting data, flocked to buy the stock, Based upon analysts' recommendations, many people used the stock to bolster investment portfolios designated for retirement and college savings. While it is acknowledged that buying stocks always entails some risk, WorldCom's inaccurate financial reporting made an objective evaluation of its policy impossible. Upon acquiring companies, WorldCom management chose also chose to ignore credit department lists of customers who had not paid their bills for a long time, thus discounting the financial drain of non-collectable bills.
Management planning: Contingency planning and corporate social responsibility
The complete lack of contingency planning on the part of WorldCom management was revealed when the company was confronted with the unexpected -- an anti-trust ruling prevented its planned acquisition of Sprint. This put an end to WorldCom's "acquisition-without-consolidation strategy and left management a stark choice between focusing on creating value from the previous acquisitions with the possible loss of share value or trying to find other creative ways to sustain and increase the share price" (Moberg & Romar 2008).
When the company's stock price began to plummet after it became clear that the company was mismanaged and its value was on paper alone, investor's lives were shattered and lower-level employees lost savings and pensions as well as a steady source of income. Faith in the financial industry was shattered, and the entire stock market was impacted when the fraud was brought to light.
Conclusion: Legal issues
The WorldCom debacle was facilitated by the recent deregulation of the financial industry. The Glass-Steagall Act once separated investment and commercial banking activities, but after its repeal in 1999, banks such as Citibank could regularly dispense...
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