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WorldCom CFO Accused of $3.6 Billion Fraud
winter was among the first to point out that allegations of fraud have led to a massive stock drop at WorldCom. A flurry of stories have popped up on Yahoo!, none of them good news for WorldCom. CFO Scott Sullivan is accused of misstating the company's revenues, specifically its earnings before interest, taxation, depreciation and amortization (aka EBITDA), and the stock has slid more than 50% (as of this writing) in after-hours trading.
I love how they pin it on one guy.... like it was all his fault. but we fired him now...
Let's put all of our Social Security money into the stock market. The private sector could make much better use of that money than the nasty old government . . .
Better yet, let's just go to Reno and gamble it all away. Yeah!
When are our corporate leaders going to put away greed in favor of fiscal responsibility? They are overpaid, over-valued and over-hyped. I can't believe that some execs make and own large percentages of the entire company, causing the stock price of the silent masses to be controlled by the actions of these idiot few. These guys even take loans for themselves ($366 million for ex-worldcom ceo)!
-Sean
one slap on the wrist, and a fine of whatever pocket change you happen to have on you.
no, investing is a science. you just proved it. its a social science. the stock market is completely based on demand and, consequently, the supply to squelsh that demand.
,whether through performance, news, or hoopla, that the stock will be worth more in the future than at the current moment.
nobody should actually care what is going on. ive seen a simple fork from a college cafeteria sell on ebay for $15. does that price seem correct for the product? hardly. ebay proves that people will pay for stuff that is literally worthless. but oh wait, its not worthless if people are willing to pay for it.
the capital system is, by definition, and efficient market. all company news is built into the current stock price, therefore what you are really paying for when buying a stock is the expectation that the company will prosper in the future. this will breed good news, which will then appropriately help people value in the stock in a new context. that is why a stock like amazon was a high flyer during the late 90s. the expectation that amazon was going to take out brick and mortars, and the fact jeff bezos was time magazine's man of the year all helped boost the expectation and perception that the stock would be worth a higher price in the future. therein, lies the science: you buy a company that will do well enough to give a perception
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[insert funny
If the reports about WorldCom are accurate then this is Enron all over again.
In today's economic environment, accountancy practices are under closer scrutiny than ever before - and not before time. The only reason why Enron were able to get away with fraud and misrepresentation on such a grand scale was because everyone - the accountants, the analysts, and the investors - had their eyes closed to the obvious.
Hindsight is 20/20, but even an idiot could tell you that, in an era where companies lie about just about everything, anything said by a CEO, issued by a press officer or printed in an annual report should be taken with a very large pinch of salt.
Post-Enron, the markets are very jittery, and many investors have lost faith entirely - if a seemingly sure-fire, blue-chip company like Enron can fall then anyone can. Freefall is an exaggeration, but compare how quickly the markets bounced back from September 11 to how badly they've reacted to the ongoing crisis of faith sparked off by the Enron/Andersen fiasco.
Witness how even the slightest sign of weakness is being jumped upon by analysts. Profits warnings and other negative indicators that would have shrugged off just twelve months ago are now being forensically examined by paranoid dealers anxious not to get caught out a second time.
One things for sure: there are a few more timebombs ticking away out there. Enron may have been just the first of many.
The bottom line is this: it's going to be some time until the markets recover and it's going to be longer still until we see the kind of market gains that we experienced in the 80's and 90's.
"Accept that some days you are the pigeon, and some days you are the statue." - David Brent, Wernham Hogg
I was "overqualified" to work for them. Sadly, there was a point where I was looking for something else to do. I wanted something that was basically brainless, mundane, paid okay, and provided decent benefits. I figured that although I'd hate it, I could be a decent telemarketer (I can speak, unlike 80% of normal telemarketers). I took their little employment test, did the interview, and was told that I wasn't the type of person they were looking for -- overqualified. I suppose, however, that if corporate management is going to be doing questionable things, they prefer to have mindless drones working for them. Fewer people to make mental notes.
I work for one of the telcos, fortunately not worldcom. But these clowns are going to bury the whole market. Between the former CEO and CFO, these fuck-witts have managed to further erode what little confidence the market had left in the sector, and most likely, the stock market and economy as a whole. I hate seeing the feds overstep their bounds, but they need to make an example out of these assholes. It needs to involve time in prison....and a lot of it...and I don't mean club fed, either, where their biggest worry is getting enough time on the driving range. No, I mean prison with Bubba and all of his sexually frustrated cell-mates. These guys deserve to someone's prison-bitch for the better part of a decade. Oh, and don't forget to conficate everything that these pricks own, so they actually have to go out and get a j-o-b when they are released.
It's the Government de-regulating all these companies that's the problem! These assholes feel like there's NO regulations now...so they can be as greedy as they want to be..and the hell with the 17,000 who are about to suffer because of their massive greed by losing their jobs.
An[d] even though anybody else has little to do with WCOM, the whole market is going to plunge.
... You'd be surprised who will be hurt, because you don't know who has exposure. The investors don't know who either, so they'll avoid everybody until they find out.
For good reason.
1) Worldcom is MCI and UUNET. MCI is the first of the competitive long distance companies and the second largest telecom. UUNET is the first commercial ISP and one of the largest. Both may just go away now.
2) Bankruptcy of something as large as Worldcom can affect a lot of other operations. While the people who buy the pieces will probably keep them running, the people they bought equipment and owe money to can probably kiss it goodbye (along with future orders they were counting on and building equipment to fill). So can everybody who bought their stock or bonds: Banks, retirement funds, money market funds, bond funds, corporations who parked some of their cash reserves in those funds,
3) Also if they go belly-up, their stuff gets sold at bankruptcy-auction prices, like ten cents on the dollar or less. Equipment winds up on E-bay and equipment manufacturers find themselves competing against their own stuff. Bottom drops out of market and equipment manufacturers suffer still more. If the buyers keep MCI and/or UUNET running, they now have working networks for which they paid nearly nothing. So they can drop their prices almost to the cost of operation and undercut competitors who had to pay for (and are still paying for) their equipment. The other tecoms and/or ISPs tighten belts further and/or start operating at a loss and also go belly-up. Down go more suppliers, more investors, more associated industries. Maybe some of THOSE go belly-up, and the fire spreads further.
4) It's another accounting scandal. (Anderson again. Oops.) This will make investors leery of other companies, raising the perceived risk of further financial scandal. ("Once is chance, twice is coincidence, three times is enemy action.") The value of stocks and corporate bonds is ONLY what people are willing to pay for them at any given instant, and people base their valuation on perceived risk vs. benefit. If the risk just got bigger than the benefit, they won't trust stocks and bonds and won't buy them. The whole market tanks.
A broad drop the market from this makes perfect sense to me.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
So you're saying that after all the years of backstabbing coworkers, financial threatening, lying, politics, selling off grandma, etc to get to the top, CEO's don't suddenly become honest?
If morals meant profits, capitalism would be the garden of Eden.
Outdoor digital photography, mostly in New Engl
People that cheat thousands of everyday people out of money that they invest in their 401k, IRA, or other investment vehicle should get life at hard labor. It is high time the Federal Government tightened up corporate law ...
But it's already illegal!
and DRASTICALLY increased penalties for offenders. No Club Fed for this guy or Ken Lay and his Enron cronies. No, they need to spend their lives in Lousisana's Angola Prison where deer and Aligators play and everyone stands upright in the shower.
I'm completely with you there. Who cares whether the crook took a thousand bux by waylaying you on the way from the bank, cracking your account, burlgling your house, scamming you, or faking a corporate financial report and causing you to lose it in the market? You're out just as many bux.
(Extra points for force and threat of force, of course.)
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
Yet more proof that analysts do not have a clue as to what is going on in the market. I particularly like JP Morgan's coverage, which was initiated a long-term buy at around 30, then upgraded to a buy at around 8.
The comparison to the auto industry doesn't work. Back when there were 50 auto companies
there were a lot fewer people in the US and a lot less demand for cars. A shake-out was inevitable.
There would be no need for any of those 25 telecom companies to go broke if they were run properly -- there's plenty of customers and plenty of demand.
What we are seeing with WorldCom, Enron, Tyco, ect. is a recurring pattern. Companies with lots of customers and lots of revenue -- who are going broke. More and more companies are becoming the playthings of the wealthy elite and Wall Street -- existing not to produce goods and services but existing only to enrich a handful of people.
example -- @Home had over 4 million customers paying $45 a month. Do the math. And yet they went broke. Could it be the $6 Billion they blew on a worthless dotcom?
example -- Exodus Communications had $300 million gross revenue in 2000. In 2001 they had $660 million gross revenue -- more than double the previous year -- and filed for Chapter 11 at the end of 2001. Why? Blowing hundred of millions on bad aquisitions.
example -- AT&T hires a new CEO. Fires him less that a year later, citing "a lack of intellectual leadership" as the reason. But gives him a $26 million severance package.
example -- Hewlett-Packard/Compaq -- History shows very clearly that there has never been a merger of this type that has worked out well. Not one. And yet the deal was done anyway because it will enrich the people who engineered the deal. 5 years from now, when Hewlett-Packard is following in the footsteps of WorldCom and Carly Fiorina is fired by the HP board of directors, it won't matter -- she and a few others will have already pocketed their millions and will draw a nice severeance package as a reward for running the company into the ground.
example -- Dozens of companies who are doing poorly, profits are down, even losing money in some cases, but top executives receive large raises and bonuses.
A somewhat similar case: Adelphia and Adelphia Business Solutions. The founding family, the Rigas's somehow got away with 3 billion in loans of various forms without mentioning them on the book (Used to prop up the Buffalo Sabers that the Rigas famly owned, buy timber land owned by the Rigas family, help develop a golf course owned by the Rigas family, payed for apartments/homes used by the Rigas family, etc etc).
ABS filed Chapter 11 several months ago and this evening Adelphia filed Chapter 11. The result from all this has cost over 500 people their jobs. (No severance packages because of the situation).
The Rigas family was asked to leave the board of directors of both units (John Rigas however will be getting a severance pay of 1.6 million for the next three years).
Note, this is being posted anonymously because I still work for one of Adelphia's departments. Posting critizing info may get you fired.
Stealing 3 billion gets you a severance package.
Well, it's not like there's any downside. Sell someone dope, go to a maximum security jail and be anally raped for the rest of your life; destroy thousands or tens of thousands of peoples' lives and you get a slap over the wrist.
We give these things special names ("white collar crime"), don't police them especially rigourously, and allow people to escape liability hiding behind limited-liability constructs, so why wouldn't you take the risk?
Enron, Tyco, ImClone, Worldcom...
All examples of companies that have become large and powerful by being deceptive.
Yeah, and all these companies are in the shit-can because they were deceptive. They have all lost power. This is good. This is the way it is supposed to work.
People are running around crying about how awful capitalism is because this happened. This sort of thing is exactly what should happen. You fuck-up an lie, and your company is screwed. Good.
Some of the competitors already have working networks. It makes no sense to buy a nationwide network or the equipment to operate it if you've already got one of your own. This really sucks for companies that have actually shouldered the cost of building and maintaining these networks, because now some competitor is going to come along and slaughter them.
The carriers will have to drop their prices below the break-even point, and there will be further layoffs and maybe even bankruptcies. And as the industry contracts, competition disappears and the consumer eventually pays for any short term benefits he/she may may have enjoyed.
A large part of the problem of fraud within corporations is because of the construct of a corporation itself. A corporation is a fictitious person who bears the responsibility of (nearly) all acts the corporation takes; stockholders can't be held liable. As a result, stockholders will constantly push towards the profit while ignoring the means of generating that income.
Comment removed based on user account deletion
I'm sick and tired of people trying to relate everything bad to terrorism. I highly doubt that this MCI guy was deliberately sabotaging anything, but that's not even the point. "Terrorism" is when you do bad things to inspire terror. Terror is a key mechanism in terrorism! If you, say, sabotage the US economy slowly by eroding investor trust over the course of months or years, that's surely harming us, but it's not terrorism!
Here's an example of some very effective terrorism: the recent "dirty bomb" thing. It's effective because the average American knows squat about radiation. Americans are so stupid that they won't buy irradiated food because they think that it's radioactive! The effect is compounded by TV "journalists" who know just as little, but are more than happy to trumpet the term "dirty bomb" over the airwaves for at least a week. And our beautiful executive branch is so eager to trumpet their success in foiling the plot that they play up the danger such a device poses in stead of spreading some usefull information about how radioactive materials work. Hello!? I bet that the actual terrorists are scratching their heads, wondering if they should retire and just let the US gov. do all their work instead.
</rant>i enjoy seeing them (the unsavory executives) personally fail
Except that the exec's rarely if ever "fail" by any common sense standard. They almost never end up in jail (where they belong), and invariably walk away with more money then you, me, and a hundred of our best friends will make in a lifetime. If failure is a bum resume and ten million bucks in the bank, I'll take that over a nice resume and a mortgage any day.
So before you jump on the bandwagon of "blame the rich guys who pirated the corporate accounts and stole nearly $4B and kept it for themselves" wait for the actual story. Chances are that money was never in the door, and profits were inflated to trick the public into thinking things were okay. Granted this is fradulent and deceptive, but its probably not how you describe it: a case of a few people stealing to enrich themselves.
Much as I'd like to join you planet Naive (soon to appear in a bad Lucas movie), perhaps you might consider stock options, which are worth a lot more if you kite the stock upwards? Or incentive clauses, such as forgivement of loans if stock price targets are met? I don't know if WorldCom execs made use of these standard vehicles for executive compensation, but that's been SOP in other corporate meltdowns. They don't steal cash, they prop up the stock with fraud while exercising their options (which although they are not yet required to be considered a hit against company earnings, definitely do reduce the company's equity dollar for dollar when exercized.)
Remain calm! All is well!
The former.
I make my daily bread by predicting which companies will fail to live up to their hype and then short-selling their stock. I also invest on the long side, but this year, it's a lot easier to find stocks going down than stocks going up.
So I make money by finding the next Enron (I think it's going to be Computer Associates). And I'm outraged by Enron and Worldcom. For the record, I've never had a position in Enron or Worldcom, and I am short CA.
Short sellers are part of the ecosystem of the market that help broom out the hype and corruption. But there is so much corruption now, it's disgusting. I should have to work hard to find a Worldcom, not see clusters of them splashed across a non-financial news site.
When will it end? It ends with capitulation. It ends when a whole fucking Beowulf of these companies collapse at once, in a big crescendo of panic, when everybody and their brother finally pukes up the evil stock, and the questionable stock, and the blue-chips, every damn thing on the market, indiscriminately.
And that's when I can cover all my shorts and pay some reasonable prices for some quality companies that actually make and sell stuff that customers actually buy.
VOIP is the biggest joke in the telcom world right now. Without spending a buttload of bucks on QOS you can't get half the quality that people demand for Voice. When you spend the money to get QOS, any cost advantage you had is neutralized. The only reason anyone cares about it is it's the only way CSCO can attempt to sell stuff to the RBOC's. Except it's not working. As Public Enemy said "Don't Believe the Hype"
An[d] even though anybody else has little to do with WCOM, the whole market is going to plunge.
... You'd be surprised who will be hurt, because you don't know who has exposure. The investors don't know who either, so they'll avoid everybody until they find out.
For good reason.
1) Worldcom is MCI and UUNET. MCI is the first of the competitive long distance companies and the second largest telecom. UUNET is the first commercial ISP and one of the largest. Both may just go away now.
2) Bankruptcy of something as large as Worldcom can affect a lot of other operations. While the people who buy the pieces will probably keep them running, the people they bought equipment and owe money to can probably kiss it goodbye (along with future orders they were counting on and building equipment to fill). So can everybody who bought their stock or bonds: Banks, retirement funds, money market funds, bond funds, corporations who parked some of their cash reserves in those funds,
3) Also if they go belly-up, their stuff gets sold at bankruptcy-auction prices, like ten cents on the dollar or less. Equipment winds up on E-bay and equipment manufacturers find themselves competing against their own stuff. Bottom drops out of market and equipment manufacturers suffer still more. If the buyers keep MCI and/or UUNET running, they now have working networks for which they paid nearly nothing. So they can drop their prices almost to the cost of operation and undercut competitors who had to pay for (and are still paying for) their equipment. The other tecoms and/or ISPs tighten belts further and/or start operating at a loss and also go belly-up. Down go more suppliers, more investors, more associated industries. Maybe some of THOSE go belly-up, and the fire spreads further.
4) It's another accounting scandal. (Anderson again. Oops.) This will make investors leery of other companies, raising the perceived risk of further financial scandal. ("Once is chance, twice is coincidence, three times is enemy action.") The value of stocks and corporate bonds is ONLY what people are willing to pay for them at any given instant, and people base their valuation on perceived risk vs. benefit. If the risk just got bigger than the benefit, they won't trust stocks and bonds and won't buy them. The whole market tanks.
A broad drop the market from this makes perfect sense to me.
"This is untrue"
Really? Can you show me the document that says you'll get anything back from the money you and your employer "invested" on your behalf in FICA?
You can't.
Congress might fold it (unlikely), change the eligibility requirements (likely), change the benefits (certain). Anything could change, and specifically, you aren't guaranteed anything other than you have to pay
So FICA has an IOU from the treasury, but your name isn't involved anywhere. So YOU aren't owed anything.
But you OWE 15.4% on all your wages to this mythical retirement plan. Fortunately, your employer is NICE enough to pick up 1/2 the tab.
You were mistaken. Which is odd, since memory shouldn't be a problem for you
the capital system is, by definition, and efficient market. all company news is built into the current stock price,
No, no, no...in Worldcom's case, the 'company info' that was built into the stock price was completely false. This led to a stock price that was way out of line with its true value- not because investors made an educated choice based on accurate information, but because they were misled.