World Com

Overview/Summary

Between 1999 and 2002, WorldCom underwent one of the largest public company accounting frauds at the hands of Chief Executive Officer, Bernard J. Ebbers in United States history. (Cohen,2013) Ebbers owned hundreds of millions of dollars in WorldCom stock. When the stock price dropped, banks began demanding that Ebbers cover more than $400 million in margin calls. Ebbers convinced the board to lend him the money so that he would not have to sell substantial blocks of stock. He also began an aggressive campaign to prop up the stock price by creating outright fraudulent accounting entries. Ultimately more than $9 billion in false accounting entries were made in WorldCom’s financial books in order to achieve desired reported financial results. (SEC,2002) On June 25, 2002, WorldCom announced that it intended to restate its financial statements for 2001 and the first quarter of 2002. WorldCom stated that it had determined that certain transfers totaling $3.852 billion during that period from “line cost” expenses to asset accounts were not made in accordance with generally accepted accounting principles. Less than one month later, WorldCom and substantially all of its active U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. WorldCom subsequently announced that it had discovered an additional $3.831 billion in improperly reported earnings before taxes for 1999, 2000, 2001 and first quarter 2002. It has also written off approximately $80 billion of the stated book value of the assets on the company’s balance sheet at the time the fraud was announced. The complaint that was filed with the Securities and Exchange Commission charged WorldCom with violations of several federal antifraud laws including Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 13a-1, 13a-13 and 12b-20. WorldCom was found guilty on all charges which resulted in WorldCom filing for...