MCI Communications

Background of MCI
Communications
MCI was founded as Microwave Communications,
Inc. on October 3, 1963, with John D. Goeken. MCI
Communications Corp. was a telecommunications
company headquartered in Washington, D.C. that
was at one point the second-largest long-distance
provider in the United States. Its MCI Mail, launched
in 1983, was one of the first Email services and its
MCI.net was an integral part of the Internet
backbone.
The company was acquired by WorldCom (later
called MCI Inc.) in 1998
What happened
• The company grew largely by acquiring other
telecommunications companies and filed
bankruptcy in 2002 after an accounting scandal, in
which several executives, including CEO Bernard
Ebbers were convicted. In January 2006, the
company was acquired by Verizon Communications
and was later integrated into Verizon Business.
Main Players
• CEO Bernard Ebbers
• CFO Scott Sullivan
• David Myers (Controller)
• Buford "Buddy" Yates (Director of General
Accounting)
How and when it happened
Beginning modestly during mid-1999 and continuing
at an accelerated pace through May 2002,
The fraud was accomplished primarily in two ways:
Booking "line costs" (interconnection expenses with
other telecommunication companies) as capital
expenditures on the balance sheet instead of
expenses.
Inflating revenues with bogus accounting entries
from "corporate unallocated revenue accounts".
Penalty
On May 2003, MCI, the former WorldCom, agreed to
settle accusations of fraud by the Securities and
Exchange Commission(SEC) by paying a $500 million
penalty that will ultimately be given to investors.
Former CEO Bernie Ebbers and former CFO Scott
Sullivan were charged with fraud and violating
securities laws. Ebbers was found guilty on all counts
in March 2005 and sentenced to 25 years in prison,
but is free on appeal. Sullivan pleaded guilty and
took the stand against Ebbers in exchange for a more
lenient sentence of five years.
Impact on industry
• $180 Billion of shareholder value lost.
• Their customers switched to other
telecommunications carrier.
• 17,000 employees lost their jobs.
• Those who hold company's stock in their
retirement plans.
Extra
In 2002, a small team of internal auditors at WorldCom
worked together, often at night and secretly, to
investigate and reveal $3.8 billion worth of fraud.[12][13]
[14] Soon thereafter, the company's audit committee
and board of directors were notified of the fraud and
acted swiftly: Sullivan was dismissed, Myers resigned,
Arthur Andersen withdrew its audit opinion for 2001,
and the U.S. Securities and Exchange Commission (SEC)
began an investigation into these matters on June 26,
2002.
By the end of 2003, it was estimated that the company's
total assets had been inflated by about $11 billion.