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WorldCom's Rise and Fall: A Case Study

WorldCom began as a small long-distance phone company called LDDS and grew rapidly through acquisitions to become the third largest telecom company in the US. However, from 1999-2002, CEO Bernie Ebbers and other executives fraudulently misreported expenses and revenues through improper accounting methods in order to inflate profits, with over $3.8 billion in fraudulent accounting discovered. This led to investigations, bankruptcy filings, and revelations that Ebbers had misrepresented the company's financial health.

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16 views1 page

WorldCom's Rise and Fall: A Case Study

WorldCom began as a small long-distance phone company called LDDS and grew rapidly through acquisitions to become the third largest telecom company in the US. However, from 1999-2002, CEO Bernie Ebbers and other executives fraudulently misreported expenses and revenues through improper accounting methods in order to inflate profits, with over $3.8 billion in fraudulent accounting discovered. This led to investigations, bankruptcy filings, and revelations that Ebbers had misrepresented the company's financial health.

Uploaded by

exquisite
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.

COMPANY BACKGROUND

WorldCom was a corporation handling long-distance phone services to business-


and resident-customers. As mentioned by Jeya (2015), it appeared as a small company
named as Long-Distance Discount Services (LDDS) during 1983 based in Jackson,
Mississippi. Later in 1985, the company took Bernie Ebbers to be its Chief Executive
Officer. LDDS became WorldCom in 1995 because it merged with the Advantage
Companies, Inc. and have become a publicly traded corporation. WorldCom grew
rapidly through several acquisitions spending almost 60 billion US dollars (Francis,
2013), considered the third largest telecommunications company within America (Jeya,
2015). Their aggressive way of acquisition strategy also made an effect to WorldCom’s
achieved position.

However, the fall started from 1999 to early 2002. Bernard Ebbers accompanied
with other senior management used accounting methods ignoring the general accepted
accounting principles (GAAP) with regards to informing the budget users of changes to
former applied accounting practices (Francis, 2013). Thus, the fraudsters used the
‘reduction of reported line costs’ and ‘exaggeration of reported revenue’ as their
approaches to fraudulent accounting methods. Unfortunately, the fraudulent acts were
discovered because the Securities Exchange Commission in 2002, started becoming
suspicious on how the corporate was making an excessive amount of profit. This led to
requests on more investigations on WorldCom’s books. Findings included Ebber’s false
representation of picture to the market, to the Board of Directors and most of the staff
on the vigorous and healthy growth the corporate was having (Beresford, Katzenbach,
& Rogers, 2003). Consequently, the corporate revealed inflating profits by 3.8 billion US
dollars over the previous five quarters and reducing expenses. Thus, in 2002,
WorldCom filed for bankruptcy after disclosures of improper and fraudulent accounting
methods.

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