WorldCom
Introduction
WorldCom was a Global
communications company
offering Internet, voice, and data
services for business
WorldCom was 2nd largest
telecommunication provider in
US, which at its peak was valued
at $180 billion
Current examples of $180 billion Key Executives :
companies: Coca-Cola, AT&T
CEO: Bernard Ebbers
CFO: Scott Sullivan
Controller: David Myers
 WorldCom reduced the amount of money it held in reserve (to cover liabilities for the companies it had
acquired) by $2.8 billion and moved this money into the revenue line of its financial statements

In 2000, WorldCom began classifying operating expenses as long-term capital investments and were recorded
over a number of years. Hiding these expenses in this way gave them another $3.85 billion. These newly
classified assets were expenses that WorldCom paid to lease phone network lines from other companies to
access their networks.

Fraud Added a journal entry for $500 million in computer expenses, but supporting documents for the expenses were
never found.

These changes turned WorldCom's losses into profits to the tune of $1.38 billion in 2001. It also made
WorldCom's assets appear more valuable.

Borrowed from creditors based on these earnings

Why did it happen?

IN AFTERMATH OF DOT-COM WORLDCOM HAD ACQUIRED MORE
BUBBLE BURST COMPANIES WERE THAN 30 COMPANIES BY STOCK
BECOMING UNPROFITABLE PURCHASES AND TO CONTINUE ITS
ACQUISITION SPREE HIGHER
STOCK VALUE WAS REQUIRED
PRESSURE TO MEET WALLSTREET FAILED MERGER WITH SPRINT
EXPECTATION REDUCED MARKET VALUE OF
WORLDCOM SIGNIFICANTLY
Discovery

An internal audit turned up the

The Securities and Exchange
billions WorldCom had WorldCom's audit committee was
Commission was suspicious
announced as capital expenditures There was also another $2 billion asked for documents supporting
because while WorldCom was
as well as the $500 million in in questionable entries. capital expenditures, but it could
making profits, AT&T (another
undocumented computer not produce them.
telecom giant) was losing money.
expenses.

The controller admitted to the WorldCom then admitted to A little over a month after the
internal auditors that they weren't inflating its profits by $3.8 billion internal audit began, WorldCom
following accounting standards. over the previous five quarters. filed for bankruptcy.
Aftermath:

WorldCom's stock
Almost 57000
price plummeted from $180 Billion of
employees lost their
more than $60 to less shareholder value lost
jobs
than 20 cents
Sarbanes-Oxley Act

THE U.S. Congress passed the Sarbanes-Oxley Act on July 30 2002 to help protect investors from fraudulent
financial reporting by corporations. Also known as the SOX Act of 2002 and the Corporate Responsibility Act
of 2002, it mandated strict reforms to existing securities regulations and imposed tough new penalties on
lawbreakers.

New law set out reforms and additions in four principal areas:

Corporate Increased criminal

Accounting regulation New protections
responsibility punishment
References

 https://www.investopedia.com/terms/s/sarbanesoxleyact.asp
 https://www.sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.
htm#ex991902_1
Thank You