Essay on Worldcom Fraud

The word “fraud” was magnified in the business world around the end of 2001 and the beginning of 2002. No one had seen anything like it. Enron, one of the country’s largest energy companies, went bankrupt and took down with it Arthur Andersen, one of the five largest audit and accounting firms in the world. Enron was followed by other accounting scandals such as WorldCom, Tyco, Freddie Mac, and HealthSouth, yet Enron will always be remembered as one of the worst corporate accounting scandals of all time. Enron’s collapse was brought upon by the greed of its corporate hierarchy and how it preyed upon its faithful stockholders and employees who invested so much of their time and money into the company. Enron seemed to portray that the goal of corporate America was to drive up stock prices and get to the peak of the financial mountain by any means necessary. The “Conspiracy of Fools” is a tale of power, crony capitalism, and company greed that lead Enron down the dark road of corporate America.

Bernie Ebbers, former chief executive officer of WorldCom/MCI, was convicted on nine counts of fraud, relating to the accounting functions of the company. Ebbers is currently serving twenty-five years in federal prison.

The stakeholders in this fraudulent case of WorldCom consist of Bernie Ebbers, Scott Sullivan, Buford Yates, David Myers, Cynthia Cooper, and Betty Vinson belong to the company. While the other stakeholders would consist of the creditors, Andersen (accounting firm), investors, and the public. This fraudulent act committed within WorldCom impacted every single stakeholder in a way. Either in a negative or positive way, most of the impact was caused with harm to everyone. The main individuals such as Ebbers, Sullivan, and Vinson all had major consequences as resulting with the fraud. Criminal trials were a major result with their fraudulent acts within WorldCom. Cooper was a lifesaver by most of the community. Aside from these individuals, the rest also got affected by the fraud. Investments conducted by the investors were all lost within the fraud process. The impact towards much of the image for Andersen was ruined. Many of the public lost their trust on the honesty and professionalism of Andersen and other certified public accounting firms. The entire employees from the top management to the smaller group of workers stayed unemployed and some with criminal punishment.

Deception, whether intentional or not, did occur. The shareholders had a right to know the financial state of WorldCom. In Ebber’s defense, he had unscrupulous bed fellows on this board. Their intentions are also at question especially regarding their eagerness to grant Mr. Ebbers a breathtaking loan for $341 million dollar at an interest rate of 2% to shield the instability of the company’s financial situation from shareholders. There were also some concerns whether such loans were ethical from the Security Exchange Commission Enforcement official Seth Taube. He stated that large loans to senior executives are commonly sweetheart deals involving interest rates that constitute a poor return on company assets. Federal prosecutors in New York cited Ebbers 's expensive lifestyle, and his overspending, as a motive to hide WorldCom 's mounting financial troubles. The impropriety associated with the largest loan any publicly traded company has lent to one of its officers in recent memory is evident. Unfortunately, if Ebbers had pressed the matter and sold his stock, he would have escaped the bankruptcy financially whole, but Ebbers honestly thought WorldCom would recover.”

Bernie Ebbers, Scott Sullivan, and other members of top management intentionally led Mississippi’s pride and joy, WorldCom, on a 5-quarter charade filled with smoke, mirrors, and much intimidation. They did it hotly pursuing success, monetary gain, and the praise of their fellow statesmen. They did it by abusing work relationships and intimidating employees with promises and threats. Ultimately, they ended up “losing their footing” which caused them and, in turn, others to slip down the proverbial “ethical slippery slope” and on the path to committing fraud.

The article entitled “Ebers is sentenced to 25 years for $11 Billion WorldCom fraud” and written by Searcey, D., Young, S., & Scannell, K. focuses on the biggest business fraud in the history of the United States. Mr. Bernard J. Ebbers, the 63 years old, founder and CEO of WorldCom Inc. corrupted the company through a shrewd way. He falsified boosted profits by making operating expenses as capital spending to meet Wall Street expectation and attract investors. In 2002, the company collapsed and Mr. Bernard J. Ebbers was sentenced to 25 years for 11 billion as a fraud. I plan to use this article to show the negative impact of business fraud on both corporations as the company collapsed and individuals as the CEO of the company was sentenced

This leads into my second pressure, which deals with personal lives. Employees were receiving tremendous benefits due to the company’s great performance. However, if the company did not improve, people’s salaries would be cut or even worse, their jobs would be cut. That is why so many people were willing to engage in the fraud, because they felt WorldCom was supplying a salary and benefits that other companies would not be able to match. Betty Vinson was a prime example. She knew that releasing line accruals was wrong, but needed to

Due to these criminal activities, many top executives were convicted fraud and sentenced to spend time in prison. WorldCom activities did not align with the company's overall mission and goals. The actions taken by management were not in the best interest of the customer instead they were consumed with acquisitions and increasing the value of WorldCom Shares. The management also should have considered general accounting practices during their strategic planning. Furthermore, create procedures that protect all stakeholders within the firm.

The WorldCom fraud case exemplifies almost everything that is wrong with corporate America today. People become obsessed with money and success and forget what it means to be an honest human being. Business is a natural human concept. Barter and trade for goods and services are necessary to the proper function of a society. However, throughout time, rules have been put in place to ensure fair practices and a level standard for which profits can be evaluated. As meticulous and frustrating as they may have seemed in Accounting 201 last year, I can understand that there are legitimate reasons for all of the rules and regulations the industry has put in play. These rules are the definition of industry standard; every accountant is aware of them.

1. The Enron debacle created what one public official reported was a “crisis of confidence” on the part of the public in the accounting profession. List the parties who you believe are most responsible for that crisis. Briefly justify each of your choices.

WorldCom was the ultimate success story among telecommunications companies. Bernard Ebbers took the reigns as CEO in 1985 and turned the company into a highly profitable one, at least on the outside. In 2002, Ebbers resigned, WorldCom admitted fraud and the company declared bankruptcy (Noe, Hollenbeck, Gerhart, &Wright 2007). The company was at the heart of one of the biggest accounting frauds seen in the United States. The demise of this telecommunications monster can be accredited to many factors including their aggressive-defensive organizational culture based on power and the bullying tactics that they employed. However, this fiasco could have been prevented if WorldCom had designed a system of checks and balances that would have

P., & Coulter, M. K., 2012, p. 152), although it seems none of WorldCom’s executive management team seemed to feel this way. Many steps could have been taken to prevent the collapse of the WorldCom empire, but only a few key managers held the power and none were willing to take action. One control that did not exist in WorldCom’s culture was allowing both internal and external auditors access to all necessary documents and statements. Without full disclosure of these items no one could see how many risks the company was taking by making fraudulent entries against their books. Also the external audit team, Arthur Anderson, held WorldCom as one of its best customers which was a major conflict of interest. This relationship lead to many fundamental mistakes from Anderson not keeping pressure on WorldCom and getting all vital information that would prove how poorly the company was being run. Had they been operating transparently, auditors and employees would have seen the accounting deception and could potentially have stopped it prior to the company’s collapse. In addition, by employing multiple auditing firms many of the mistakes being made may have been caught and discontinued from the beginning.

At first Siemens downplayed the affair saying that it was only a matter of a few millions Euros. However within a month their own estimate skyrocketed up to an amount of 420 million Euros. Furthermore Klaus Kleinfeld the then recently installed CEO, denied awareness or involvement. Siemens’ first statements were exemplary of an ill-suited cursory attempting to downplay a developing scandal prematurely. This tactic appeared egoistical and lacked moral responsibility. It also damaged stakeholders’ impressions of Siemens’ integrity and in general damaged its reputation in the public eye. Many viewed this defensive acknowledgement as incompetent. Then however Senior Executives made public pledges to restore the firm’s battered reputation just a month later.Siemens mandated the New York law firm Debevoise and Plimpton LLP and several

A multitude of choices made by executives at WorldCom led to the ultimate demise of the company as it was previously known, the employees and their livelihoods’, and the trust of the American people. In a time when corporations fail to set ethical standards and provide transparency to investors, how do we change corporate culture on a national level? By analyzing choices made to improve stock prices and company image that ultimately result in failure-- we can guide

There were several people responsible for the WorldCom scandal, as well as, whistleblowers that first discovered the accounting fraud. The former CEO, Bernard Ebbers was found to be the main offender of the fraud. He did it by capitalizing inflated revenues with phony accounting entries and he was eventually sentenced to 25-years for fraud, conspiracy and filing false documents with regulators. Scott Sullivan, the former CFO, pleaded guilty to one count of conspiracy to commit securities fraud and was sentenced to 5-years after testifying against Bernard Ebbers. The former Director of General Accounting, David Myers, pleaded guilty to