WorldCom Scandal: One of the largest public accounting frauds in history
Introduction/Background
WorldCom was founded in 1983 as LDDS (Long Distance Discount Services)
Communications and its headquarters were located in Jackson, Mississippi (Atlas, et. al,
New York Times, 2002). It quickly became the nation’s second largest long-distance
company and the largest handler of Internet data (after AT&T) (Atlas, et. al, New York
Times, 2002). Bernard Ebbers was one of the original investors of LDDS and was
selected to be CEO in 1985. Ebbers started out his business career in motel chain
operation in Mississippi. In 1989 as a result of its merger with Advantage Companies,
Inc., WorldCom became a publicly traded entity. The company was changed to LDDS
WorldCom in 1995 and was relocated to Clinton, Mississippi.
Rapid Expansion
Throughout the 1990s WorldCom grew quickly by acquiring other
telecommunications companies. They acquired 60 other independent telecommunication
firms. The Telecommunications Act of 1996 imposed rules that allowed mega telecom
companies to compete in the market. WorldCom was the frontrunner and greatly
benefited from this act and the rules associated with it which included promoting
competition and reducing regulation in order to secure lower prices and higher quality
services for consumers (Rosenbush, 2005, fcc.gov). The Telecommunication Act of 1996
was the first major overhaul of telecommunications law in almost 62 years at the time of
enactment (fcc.gov). The goal for this law was to let anyone enter any communications
business (i.e. to allow any communications business to compete in any market against
any other (fcc.gov). Some of WorldCom’s mergers and acquisitions included: Advanced
Communications Corporation (1992), Metromedia Communication Corporation (1993),
Resurgens Communications Corporation (1993), IDB Communications Group, Inc.
(1994), Williams Technology Group, Inc. (1995), and MFS Communications Company
(1996). The acquisition of MFS also included UUNET Technologies, Inc., which had
been acquired by MFS shortly before the merger with WorldCom. In February 1998,
WorldCom purchased CompuServe (an online pioneer company) from its parent
company H&R Block. Along with its rapid acquisitions, WorldCom was also
accumulating $41 billion in debts at the same time (Atlas, et. al, New York Times, 2002).
The 6 employees of WorldCom that were involved in the accounting scandal were
