MCI WorldCom Accounting Scandal

Type
Essay
Pages
3
Word Count
1200
School
N/A
Course
N/A
WorldCom, originally Long Distance Discount Services (LDDS) was formed in 1994 with
the take over of several telecommunications companies including Communications Group,
Inc, and WilTel Network Services (Funding Universe, 1999). WorldComs CEO Bernard
Ebbers, who had also been LDDSs CEO since 1985 had a history of acquiring other
telecommunications companies, which paid off in 1998 with the $37 billion purchase of
MCI (Funding Universe, 1999). The two companies merged and became MCI WorldCom,
"one of the largest telecommunication companies in the world" and second largest in
America (Funding Universe, 1999). At its peak, MCI WorldCom was predicted by many
analysts to become "the fastest growing megacorp" with more than 80,000 employees in
over 65 countries around the world (Sridhar, 2002). MCI WorldCom was worth $180
billion at its top during the dot com era of the late 1990s but as soon the dot com bubble
burst it began to see its market value fall and an accounting scandal was in the works
(WorldCon?, 2002). What began in 1999 and continued through May of 2002 was one of
the largest accounting scandals in American history as well as led to the biggest Chapter 11
bankruptcy protection in United States history (Jonesington, 2007). MCI WorldCom,
however did not become the megacorp it was predicted to became an instead became a
mega accounting scandal.
MCI WorldComs scandal became apparent to the public in early 2002 with what many
believed was an order booking scandal in three branch offices, Pentagon City, Baltimore,
and Chicago offices (Dreazen, 2002). Three of MCI WorldComs top selling employees,
Peter Collier, Messrs, and Roger Davis, had been boosting their sells and that of their sales
team by artificially inflating their numbers using sales already accounted for in other
division, by as much as "$4 million in illegitimate sales commissions" (Dreazen, 2002).
Collier, Messrs, and Davis were all fired but the damage to WorldCom had just begun.
With the booking scandal that had recently taken place at MCI WorldCom many eyes
became focused on the company. The next big hit to the company was the firing of CEO
Bernard Ebbers in April 2002 (Jonesington, 2007). Just a year earlier, Mr. Ebbers had
gotten the Board of Director for MCI WorldCom to loanhim $400 million to cover margin
calls for his stock which he often "used to finance his other businesses endeavors",
however this did not bring prices back up and he was fired (Jonesington, 2007).