They had been offering financial solutions and encouragement to purchase the WorldCom stock based on a favorable business relationship. However, at the time when bankruptcy procedures were commenced, the three organizations recognized their losses and intended to recuperate them.
A succinct presentation of the period surrounding the crisis could be reveled by the media stories:
27 June 2002 - information on the people affected by the WorldCom crisis become available - about 60 banks across the globe had granted loans to the organization or purchase bonds
27 June 2002 - SEC charges the organization with fraud and three organizational leaders are subpoenaed before a governmental committee
28 June 2002 - John Sidgmore announced a cut in costs by $1 billion and the downsize on 17,000 employees
U.S. President George Bush condemns organizational fraud and asks for tougher new laws in this matter
July 2002 - WorldCom announces that the questions raised relative to the ethics of their operations would be answered through a strict audit analyzing deals and documents dating back from 1999
July 2002 - Bernard Ebbers and Scott Sullivan appear before the American congressman, but refuse to testify, based on the fifth amendment of having the right not to incriminate themselves (BBC News, 2001)
21 July 2002 - the company files for bankruptcy and announces a $41 billion debt
August 2002 - the audit committee finds another $3.3 billion irregularity, forcing the company to restate their earnings
March 2004 - former CEO pleads not guilty on the accounts of fraud and conspiracy
May 2004 - Bernard Ebbers is found guilty of falsifying financial statements sent to the Securities and Exchange Commission
15 March 2005 - Ebbers is found guilty of fraud, conspiracy and falsification and faces a sentence up to 85 years
13 July 2005 - Ebbers receives a 25 years sentence
26 September 2006 - as the appeals filed fail to change the initial sentence, Bernard Ebbers is incarcerated (CBC, 2008).
As the company went into bankruptcy, an audit was conducted. The post-bankruptcy audit revealed two more important pieces of information. First of all, WorldCom had overvalued numerous acquisitions by $5.8 billion and secondly, it had estimated a pre-tax profit of 7.6 billion for 2000. "In reality, WorldCom lost "$48.9 billion (including a $47 billion write-down of impaired assets)." Consequently, instead of a $10 billion profit for the years 2000 and 2001, WorldCom had a combined loss for the years 2000 through 2002 (the year it declared bankruptcy) of $73.7 billion. If the $5.8 billion of overvalued assets is added to this figure, the total fraud at WorldCom amounted to a staggering $79.5 billion" (Romar and Calkins, 2006).
The fraud has also been backed by another player, Tom Stukla, a capacity planner at WorldCom. In his operations, he used an Excel spreadsheet to estimate the expected growth in revenues, due to the growth of the internet traffic. Current data indicate however that his estimates had been wrongful, as he suggested that internet traffic doubles every 100 days - an unsustainable and unrealistic scenario. Foremost, in his planning processes, he failed to correlate the reality of the facts, and simply used variables and parameters as he saw fit (Faber, 2003).
5. Consequences and Remedy
WorldCom filed for Chapter 11 Bankruptcy protection in 2002 and regained from it by 2004. As this happened, the organization officials saw the impending need of changing their name. This strategy was aimed to salvage what was left of the corporation's image and reputation. Today, the company is simply called MCI Inc. And is being traded on NASDAQ under the symbol MCIP, as compared to WCOM, its pre-bankruptcy symbol.
The following CEO and CFO, Michael Capellas (former CEO of Compaq Computer) and Robert Blakely fought a long battle to conduct a through audit analysis of the organization, settle the debt, reorganize MCI and set a new direction for development. The operations implied the efforts of approximately 1,500 individuals. "At the peak of the audit, in late 2003, WorldCom had about 1,500 people working on the restatement, under the combined management of Blakely and five controllers [...] the total cost to complete it: a mind-blowing $365 million" (McCafferty, 2004).
After the trial in 2003, the company moved its headquarters from Mississippi...
WorldCom Prior to the corporate financial scandal, WorldCom was one of the largest long distance telephone companies (Reuters, 2003). Initially headquartered in Mississippi it later moved to Virginia. The company grew fast by acquiring other companies such as MCI Communications in 1998 and UUNET technology in 1996. Other companies acquired included, Metromedia in 1992, Resurgens Communications Group in 1993. In the course of this acquisition spree, WorldCom undertook two complex
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