Professional Documents
Culture Documents
ASSIGNMENT
BY,
P.PRAVEEN KUMAR
DI10021
The financial world was rocked by accounting
scandals in the late 1990s and early 2000s.
Companies such as Enron, Global Crossing and Tyco
International collapsed under the weight of fraud and
destroyed investor confidence in corporate
accounting. But the biggest collapse was that of
WorldCom.
In 1983 Bernie Ebbers and several other people
invested in a newly formed company in Clinton,
Mississippi called Long Distance Discount Services,
Inc. (LDDS). LDDS was a provider of long distance
telephone service to residential and commercial
markets. Ebbers became CEO of LDDS in 1985. In
1989 the company merged with Advantage
Companies, Inc. and became publicly traded. In
1995 the company name was changed to LDDS
WorldCom, and later to just WorldCom. WorldCom
grew to be the second largest U.S. long distance
provider, second only to AT&T, primarily through
acquisitions. Among the companies it bought or
merged with were Advanced Communications Corp
(1992), Metromedia Communication Corp. (1993),
Reurgens Communications Group (1993), IDB
Communications Group, Inc. (1994), Williams
Technology Group, Inc. (1995), and MFS
Communications Company (1996). The MFS
acquisition included UUNet Technologies, Inc. In
February, 1998 WorldCom purchased CompuServe,
kept its Network Services Division, sold its online
service to America Online and acquired AOL’s
network division. On November 10, 1997 WorldCom
merged with MCI Communications. In 1999 MCI
WorldCom announced a planned merger with Sprint
for $129 billion. The US Department of Justice and
the EU put pressure on the companies to forego the
merger due to concerns about monopoly. The merger
was terminated on July 13, 2000 and the company
was renamed, once again, WorldCom
The telecommunications industry entered a
downturn in 1998, shortly after WorldCom acquired
MCI. The basic problem faced by WorldCom was the
“vast oversupply in telecommunication capacity that
emerged in the 1990s, as the industry rushed to
build fiber optic networks and other infrastructure
based on overly optimistic projections of Internet
growth”. Telecommunication firms “faced reduced
demand as the dot-com boom ended and the
economy entered recession”. Their revenues fell
short of expectations, while the debt taken on to
finance mergers and infrastructure investment
remained, As WorldCom’s stock prices began to fall
the company, under the direction of CFO Scott
Sullivan, Controller David Myers and Director of
General Accounting Buford Yates, “used fraudulent
accounting methods to mask its declining financial
condition by painting a false picture of financial
growth and profitability” .As stated in the CRS Report
for Congress, “The desire to avoid or postpone stock
market losses of this magnitude creates a powerful
incentive for corporate management to engage in
accounting practices that conceal bad news”