The 11 Billion Dollars Fraud: WorldCom

A company that was once one of the world's largest telecommunications companies and a core dividend-paying stock. How it go bankrupt and did a big 11 billion dollars fraud. we'll see in this article today. Let us go deeper.

The 11 Billion Dollars Fraud: WorldCom

The WorldCom Fraud

WorldCom, the USA's second-largest long-distance telephone company at the time. From 1999 to 2002, senior executives at WorldCom led by founder and CEO Bernard Ebbers orchestrated a scheme to inflate earnings to maintain WorldCom's stock price. 

WorldCom carried out its bad accounting through the actions of its leaders. Its chief financial officer (CFO), Scott Sullivan, didn't treat capital expenditures and expenses properly.

The Beginning of Fraud

Sullivan, WorldCom's CFO, took billions of dollars in operating expenses and spread them out across so-called property accounts. These are a type of capital expense account. This action let WorldCom show the expenses in smaller amounts, for years, instead of reporting them right away.

As a result, in 2001, the firm inflated revenue by roughly $3 billion and stated a $1.4 billion profit instead of a loss. Had the operating costs been reported the right way, the books would have shown that WorldCom lost money for the 2001 fiscal year and first quarter of 2002.

The Fraud Revealed

The fraud was uncovered in June 2002 when the company's internal audit unit, led by vice president Cynthia Cooper, discovered over $3.8 billion of fraudulent balance sheet entries. Eventually, WorldCom was forced to admit that it had overstated its assets by over $11 billion. At the time, it was the largest accounting fraud in American history. 

The filing led to an increase of scrutiny for the firm's leaders and prompted legal investigations into WorldCom's CEO Bernard Ebbers and CFO Scott Sullivan.

The End Notes

This fraud is so big and has affected so many individual shareholders of the company that new legislation arrived after this event happened. Well, that's all in this short yet interesting article. If you find it good. Please comment down below. And yeah. Have a good one. Cheers!