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Background:


WorldCom was an American telecommunications company with headquarters in Clinton, Mississippi. At a time, it was the second largest long distance phone company is the United States. WorldCom aggressively bought other telecommunication companies, including MCI Communications, which allowed for its growth. It also owned Tier 1 ISP UUNET, a major company in the internet industry.

Scandal:


The telecommunication industry began to slow down in 1998 and WorldCom's stock began to decline. WorldCom's CEO Bernard Ebbers was under pressure from banks to cover margin calls on his WorldCom stock that was being used to finance his personal luxuries. The company's profitability began to look worse in late 2000 after a proposed merger with Sprint fell through. The following year, Bernard Ebbers convinced the board of directors to give him corporate loans and guarantees worth more than $400 million in total to cover the margin calls but he was later fired in April 2002. During this time (between 1999-2002) WorldCom's CFO, Scott Sullivan, controller, David Myers and Director of General Accounting, Buford Yates used unethical accounting practices to mask its declining financial position by exaggerating financial growth and profitability to increase the price of WorldCom's stock. WorldCom's internal audit department finally realized illegal activity was taking place after uncovering approximately $3.8 billion in fraud in June 2002. By 2003, it had been discovered that the company's total assets have been inflated by close to $11 billion.


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Aftermath:


The WorldCom scandal cost 30 000 employees their jobs and cost investors $180 billion. In 2005, Ebbers was found guilty of all charges and was convicted of fraud, conspiracy,and filing false documents with regulators and was sentenced to 25 years in prison.







Funny Cartoon!

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