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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...
...did Martha Stewart sell her stock in time?
This is my post. There are many others like it. If you don't like what you read here, go try one of the others.
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.
This is just another example of the real trouble American companies are in. On PBS the other night, Frontline divoted a whole hour to the extreme mess than the accounting/stock/ceo situation is in... Basically, Stock options aren't reported. CEO gets huge stock options. CEO lies about company's value. Accountants lie for value too, as they have consulting contracts with the company. Truth is found out, company's stock plunges, accounting company shreds paper... pays off politicians to keep things status-quoe... cycle starts over again. Very scarry.
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
when I checked stocks were .20 a share, down 78%
Yahoo Real-time Mkt
Thanks to file sharing, I purchase more CDs
Thanks to the RIAA, I buy them used...
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
This guy predicted that 25 of the largest telco companies will go down (and this 25 included Nortel, but that's the only name I remember), and NO ONE will rescue them at all, because the only way the other 4-5 companies will have a chance of a healthy life afterwards is if they let the companies go bankrupt (R.I.P.) while the 4-5 remaining companies will buy them up in a fire-sale.
Just wondering if anyone else heard about this prediction...it was just last week I think. I'd also like to get my hands on the article. If anyone knows anything about this, please let me know. I did a bit of Google searching and checked the NYTimes, but didn't find anything. Bad keywords probably.
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.
Every plan for reforming Social Security that I've seen has been voluntary. If you don't think you have the ability to manage your own money, you would be free to continue to fling it into the current Ponzi scheme. But those of us who do understand basic concepts of math and economics shouldn't have to suffer because of your fears.
How to solve most of our problems: 1.Lots of nuclear plants. 2.Cure aging.
+3 informative? I don't think so
June 25 -- WorldCom has uncovered what people close to the company describe as a massive fraud, inflating a common measure of its earnings by more than $3.8 billion over the last five quarters. The company late Tuesday confirmed its intention to restate its earnings and said it had notified the Securities and Exchange Commission.
6 billion seems to be what their earnings should be:
Without these transfers, the company's reported EBITDA (earnings before interest, taxes, depreciation and amortization) would be reduced to $6.339 billion for 2001
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.
If their equipment is put up for auction, all those competitors out there will have an equal chance to bid up the prices. So it doesn't make sense to say that equipment will go for nearly nothing, allowing huge prices cuts. If the equipment is cheap enough everyone will bid on it, and it won't go for nearly nothing anymore.
Also, don't ignore the positive effects that a cheap equipment auction could have. Maybe some company will be able to keep a few more employees with the money they save buying used MCI racks.
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?
This is a serious situation. This fraud has cost 17,000 people their jobs and many others their life savings.
A quick peek of the Yahoo WCOM Message Boards shows many desperate messages about people threatening suicide and serious financial losses.
These are the people who the suits at the top never think of, while they enrich themselves.
Guess who was their auditor until last May... Andersen. (Bloomberg) However, they claim WCom was wihholding information from them, hum.... Fortunately for your own company, you can't choose Andersen to be your auditor anymore :-)
...WorldCom Finds $3.8 Billion Error.
Too bad for WorldCom it wasn't the old "Community Chest" card reading "Bank error in your favor. Collect $3.8 Billion dollars"
I hope that someday we will be able to put away our fears and prejudices and just laugh at people. - Jack Handey
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.
I suggest you look up 'Kondratiev cycle technology'. Jay Forrester (inventor of magnetic-core memory), studied this at MIT/Sloan school and determined that the a long-term economic cycle develops due to the 'self-ordering' nature of capital equipment.
Basically Forrester's group found evidence for the following feedback loop: Early in the deployment of any technology there is a scarcity of capital. Capital equipment is expensive, and early investments involve high degrees of risk accompanied by high profits in a given technology sector. That in turn brings investment in the businesses developing this capital. However, a large part of this capital is used in the development of the capital itself (i.e. IT tends to need advanced hardware and software to develop the bleeding-edge new hardware and software for actual end-use).
Thus the 'buildup phase' of new technology creates a high demand (for both the acutal equipment and the stock of the companies that make it). At some point, however the generation of this new (and expensive) equipment (or software) exceeds the actual (end-user) demand. When this happens the high profit margins that were being realized during the build-up phase disappear quite rapidly, the investment-value follows (crashing stock prices) and the investment money looks for other places. See this article
Sound familiar? Whether or not you buy into the economic details, this is one of the behaviors seen in economics. The inflated acquisition prices mentioned are the direct result of this effect.
Because sure people make stupid mistakes even (especially?) with billion dollar transactions. But the funny thing about the stock market is that the money doesn't ever go away. Whenever someone loses in the market, someone else has made a profit.
And yes it sucks when the players break the rules but especially on the financial rules the market punishes you very hard. I worked for a biotech firm that was growing well, showing solid net earnings ca $300m on $2b sales, a 30:1 p/e ratio. Our japan division was found to have been moving inventories to the tune of changing the sales #'s by $50m. This lie, accounting for only 2.5% caused a nearly 50% drop in stock price and a (justified) shareholders lawsuit.
Whenever someone fsck's with the rules of the game (fixing the books, insider trading, breaking anti-trust rules, whatever), real people get hurt and we have SEC, IRS etc to try and keep up with the process. MS imo is an excellent example of how a determined and unscrupulous competitor can harm while evading the systems controls(sic).
I'm just thanking my stars that (so far) the politicians havent fscked up like they did after the '29 stock market crash. The US enacted protectionist trade tarrifs which effectively were the first blow in killing off the *world* economy.
Post-sept-11'th fears and RIAA / DMCA idiocies aside, at least across a several bumpy decades our boneheads in Washington, the EU, etc at least so far have managed not to fsck up. They still have opportunities to snatch defeat from the waiting hands of victory, but so far it could be a whole lot worse I think.
Linux is Linux, if One need clarify their dist: <Dist>/GNU Linux
bsds are of course just BSD
I'm going to go a little off topic here, but this is my personal analysis of why we are seeing so many large companies like WorldCom collapsing in on their own corruption.
We all know that power and money doesn't circulate within a vacuum. Everything in the world is tied together, so that when one force of influence diminishes another will rise to take its place. The five main players I see in the modern world economy are - The governments, big business, small business, unions, and workers/individual consumers. The dynamics and fairness/wealth distribution of an economy are highest when there is a balance of influence between each of those forces. Historically, they are rarely balanced (and in some countries they are completely imbalanced), but I think the opportunities to correct it are greater than ever now.
As you may guess, I believe that the weight of influence in the American economy (in a concerted push since the early 80's) has tipped to predominantly favour big business and big government/military. Since America's economy is twice the size of number 2 - Japan - it controls global economic policy and as such is creating mirror economies to its own around the world. This imbalance is spreading like an epidemic around the world, seriously affecting other countries who model themselves off America - like my own country Australia.
So, what can be done about it? It seems a rebalancing isn't going to happen on its own, or at least not until the current situation degenerates to a point where violent revolution is needed to fix the problem. I guess there's several paths that could be chosen but here are two off the top of my head. One - allow the current consolidation of small and medium sized business into large/uber businesses to continue but restore power to the unions. Two - shift all laws that favour big business to favour small business instead.
Personally, I favour the latter. A society run by small business is far less likely to have organised and entrenched corruption - eg Would Dick Cheney have been swayed by the CEO of a company that controlled only one or two power stations? What benefit would a government get by helping out small companies that can't contribute many campaign funds and have little influence around the nation?
Anyhow, I think I'll cut the sermon off here. I think +5 troll and +5 offtopic is a good enough effort for today!
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.
If you don't think you have the ability to manage your own money, you would be free to continue to fling it into the current Ponzi scheme
I'm confused. Is Social Security a Ponzi scheme? Or is the stock market? While SS in many ways resembles a Ponzi scheme, it's been a remarkably sustainable one. On the other hand, hindsight has revealed that many Internet stocks not only resembled Ponzi schemes, but collapsed in short term screwing all but the early investors exactly as a Ponzi scheme should. If it walks like a duck, and quacks like a duck, it's a duck. If it promises huge returns, relies on an unsustainable number of new investors, and screws everyone but the top level, it's a Ponzi scheme. Good old fashioned Blue Chip stocks are fairly reliable. But a lot of the crap that the stock market has gotten away with over the last five years is just plain fraud.
Enron, Worldcom, Microsoft?
(Discovered by Ksosez on #mozillazine.)
The shareholder is always right.
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"
http://www.theregister.co.uk/content/4/24068.html
:-)
However, having untold billions in the bank should help a little
"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
Not that you need much convincing, but this article over at the NYTimes is rather interesting, considering recent events. It talks about the extremely rough times that telecom companies are going through, and leaves open the possibility of a complete meltdown of that market. Scary, because as you said this affects everyone in the tech industry.
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.