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WorldCom Fraud Doubles
Silvaran writes "No, this isn't a repeat story. WorldCom claims another $3.3 billion accounting error. That's about $7 billion, for those that are counting. Wish I had that kind of cash to miscalculate on my income tax forms." There's also a NYT story. I love how the news outlets are saying, "error", "irregularity", "problem", as if this was all some sort of tragic accident, instead of laying out the obvious truth, "criminal fraud committed with full knowledge it was a crime".
You do often see this - in the accounts sent to the Tax Authorities. There is a whole bunch of accounting theory around Transfer Pricing that does exactly this.
Tom
Worldcom's CFO is already in jail awaiting trial and the company is going bankrupt. The hotest story I am hearing on the streets here in DC is the fact that no one from Enron is in jail yet. This will increasingly stink up the Bush administration since his staff has so many Enron ties. Enron was Ashcroft's largest campaign supporter. Congress passed laws making rules tougher for future wrongdoers but it is not clear to me that the rules needed to be made stronger. Imclone, Worldcom and Adelphia C?Os are already in jail under current laws. Why haven't the laws been applied to anyone at Enron?
Wrong. Microsoft was recently investigated by the SEC for understating its revenues. They understated how much money that they were making in order to save it for bad quarters. If that's not making a company look less wealthy, I don't know what is. It's essentially the inverse of what Enron / Worldcom did.
There's currently an article on kuro5hin that is working its way out of the queue that describes what 'you never hear about'.
-Chris
While Dubya may be a doofus, he at least knows how to put his finger to the wind, much like his old man did, in the past he was leaning off his buddy Ken, but now that the winds have shifted, Kenny and company are just waiting in the on deck circle.
What I've been reading about the whole Enron thing, it's not a matter of figuring out who the bad guys are, but unravelling everything enough to have a clear picture to take to a grand jury. The "accounting practices" of WorldCom, Global Crossing, Adelphia, etc. are pretty blatant. Enron takes this to a whole new level.
Imagine a 4500 machine network wired by a pack of monkeys hopped up crack, crystal meth, and mescaline, and you'll have a pretty good idea of how convoluted the shell game that Enron was running was. Ken Lay and his boys are going down, it's just going to take awhile to untangle the wiring.
Not that Dubya wouldn't cover for him if he could, but that would be total political suicide.
Wu-Tang Name: Half-Cut Skeleton Get your own Wu-Na
The South Korean government started cracking down on their notoriously corrupt companies some time ago. Compare their overall stock market performance to that of the US recently. You'll wish you'd had your money in Seoul...
Have to make a point here...
IRS dont care about revene. They want gross income - or profit before tax. Net income is true profit with all expenses / taxes accounted for. You can make as much as you want, but if your expenses are greater than revenue, the IRS dont get a cent. Revenue - expenses = gross profit, then you work out what the IRS gets, then the remains are Net or true profit.
Nice copy/paste, jagoff.6 &cid=4038 371
http://slashdot.org/comments.pl?sid=3769
Are we talking about the same Times? I think my friend is referring to the London Times here.
Please give us some examples of the "well-documented history of sensationalizing " the Times indulges in.
Certainly the New York Times has a more glamourous, brash look to it, the last time I read it (last over in February).
I have to agree that the UK tabloid press are some of the most appalling rags in Europe, perhaps it is these you refer to?
The Guardian is mildly left of centre which would probably annoy most of the slashdot US readership from a political perspective, but hardlt a gutter rag, and The Times is one of the most establishment, conservative papers around.
Looking forward to hearing your examples...
I used to work for a Big Five accounting firm (not Andersen) and I did a variety of work -- tax consulting, mostly, but also some auditing. I am both an accountant and an attorney. I have left the tax world for the general practice of law, and despite all the lawyer jokes to the contrary, I feel "cleaner" about what I do now (mostly chasing ambulances). I would never have guessed that if you asked me about it when I graduated from law school lo those many years ago.
/. readers from other countries, I hope you aren't getting too giddy about this. The simple fact is that many, many studies have been done about transparency of financial reporting and business ethics. The US is always at or near the top of those studies in having transparent accounting/reporting and having a reasonably honest system. In the present, only a tiny, tiny fraction of publically-traded companies have been affected by this, and I think the worst is over. I think overseas investors should wonder about what is being concealed on the books of some of their companies. Japan's banks' problems are widely known, but I throw that out there as an example. I will bet that it is not just the US affected by this -- the US is simply the most prominent place where it is going on. The fact that many people around the world like to watch the US get it in the crotch from time to time doesn't hurt the publicity, either. Especially after so much nationalistic chest-thumping from the US about its place in the world lately. I understand the schaden freude, but I don't necessarily think that the smugness associated with it is really very wise.
Here is my spin on the Worldcom situation:
1. Auditors will never, I repeat, never, catch outright fraud at companies they audit if the company is actively trying to deceive the auditors. Auditors look at only a fraction of financial records of a company, and if certain transactions are concealed or are outright misrepresented by the audited company's employees, it is extremely difficult to get to the bottom of the situation. Auditing is, reduced to its bare essence, statistical sampling of transactions with the sampling focused on major items and a certain percentage of the "ordinary" transactions. At a large company like Worldcom, it would be relatively simple for the CFO to completely fool the auditors (most CFOs come from the public accounting world and know very well the game that they are trying to cheat at).
2. Audits do not pass on the quality of a business, they simply try to determine if a company has followed "generally accepted" financial accounting practices as promulgated by the financial accounting standards board FASB - located in CT, home to Joe Lieberman who fought vigorously an attempt to reform accounting back in 1995, btw -- it's not just Harvey Pitt and the GOP Enron cronies at work here - the whole system is rotten. Shareholders who expect auditors to let them know a business model sucks will be waiting a long time and they are exhibiting pathological ignorance.
3. Of all the big accounting problems rearing their heads, a disproportionate number are coming out of Andersen audits. KPMG, PWC, E&Y, and C&L are all mostly avoiding the maelstrom. Why? The culture at Andersen? Leadership at Andersen? I honestly do not know, but it is striking that Andersen is auditing most of the problem children of the stock market.
I know people at Andersen at all levels who are smart, diligent, and honest. I have worked with many folks from Andersen. People move from Big Five firm to Big Five firm all the time, so there's no inherent "you are evil if you audit for Andersen" rule. I am at a complete loss to explain why Andersen is in the neighborhood at the time all these arsons are taking place, but it seems peculiar.
4. The changes recently enacted by the Congress and GW prohibiting consulting and auditing to be done by the same firm will do bupkus to stop accounting problems. The biggest source of accounting fraud results from the company misleading auditors. "Aren't the outside auditors professionals? Can't they see through the frauds?" The simple answer is, no, they can't under most circumstances where they are being wilfully mislead by the audited company. Outside audits are simply not as good a method for identifying fraud as the public perception makes them out to be.
5. Something I have seen pushed hard by accounting firms is what is called an accounting "product." Accountants have things they sell to companies and their work involves "deliverables." It is first and foremost a business.
What are the "deliverables" that I am now most vividly recalling? Ways to move debt off of balance sheets by arranging lease purchase agreements. Setting up subsidiaries to hold assets that drag on earnings growth. The thing is that these sorts of strategies complied with FASB rules for GAAP. The Big Five became more and more aggressive at coming up with and pushing these strategies. Nothing was more desirable than going into a company you audited with something that could add a cent or two to EPS while following GAAP and then billing $20 million dollars for it. There were (and are, I am sure) national sales teams pushing the hell out of these things.
What is the significance? The underlying businesses of the companies that purchased these products did not change. The reported earnings appeared to be growing or growing faster with no substantive change in the quality of the audited business. Especially at a time where P/E multiples were at record historical levels, an added cent or two could result in billions (BILLIONS) of added market capitalization. Combine that with the enormous amount of stock options offered to management level folks, and you begin to see why these "accounting products" were so popular -- accounting firms got huge fees, execs got enormous increases in the value of the shares/unexercised options, and the cost to the audited business was a pittance in comparison.
Your average investor knew nothing about this. The average brokerage firm analyst probably knew less than s/he should have. Finance majors know very little about accounting and generally end up on Wall Street sneering at their boring(!) friends who majored in accounting who largely go to the financial accounting world. The result is that the audited companies (and their management) were in the middle knowing pretty much the whole story while trying to mislead investors and analysts (who have their own house to clean, btw).
The fact that all of this took place during one of the biggest bubbles in the history of american financial markets only exacerbated the problem.
For
Long enough, back to work. So many people to sue, so little time. (that's a joke, people)
Lots of petrified grits
Why is Worldcom being allowed to write off 50 billion dollars (as mentioned earlier) in addition to the 7 billion they already stole?
Because most of the "value" of a publicly traded company is ethereal: If company A buys company B for a stock swap or equity issue of $100 billion, then theoretically company A's value increases by $100 million. Of course in actual assets, company B might contribute maybe $10 million, at most. If company A totally fubars company B (cough..cough...HP...Compaq...) and they don't integrate well, and things like goodwill are lost (like when a well known company is absorbed and has its name changed, etc. The "Good will" of the company is largely evaporated): At some point company A has to reassess the book value versus the real world value, and that's when you get these massive write downs.
It really is ridiculous, and criminal, the way many big businesses operate. The whole business world goes through cycles, probably about 8 year cycles, where they merge, and then they divest, then they merge, then they divest. The purpose, of course, is because CEOs and their board pad their pockets during every phase in the cycle, yet down the line INVARIABLY they are writing off tens of billions of dollars of shareholder value. The one bright point of this whole fiasco is that maybe, just perhaps, the investment community will have wisened up and won't tolerate this is the future. Of course, it's more likely that the robber barons will be back at in in a few years, after our short memories have gotten the best of us.
(4) And once again - WHY AREN'T THESE FSCKING IDIOTS IN JAIL? If I bounce a check for 100 bucks I'm sure to face the consequences - yet if they "steal" 7 billion dollars its okay?
They did not "steal" 7 billion dollars. They just didn't report it properly as operating expenses, meaning that they inflated their overall profit. However, that money wasn't taken from anyone, as would be the case in stealing. The $7 billion was spent, and it bought real things. This is the difference between an income statement and a cash flow statement.
To answer your question, if you bounce a check for $100, you're depriving someone of the $100 you promised. In the case of WorldCom, this is not what happened.
"This discovery is very disappointing to me -- as I'm sure it is to you. And it is quite possible that as our investigation continues we will find other questionable entries." - WorldCom CEO John Sidgmore in an email to employees
Here's the email
If getting business after business bailed out at taxpayer expense qualifies you as being "morally and ethically correct," I guess Bush is.
If being AWOL during your time in the National Guard (which coincided with the Vietnam War) qualifies you as being "morally and ethically correct," I guess Bush is.
If killing more people in Afghanistan than were killed in the World Trade Center qualifies you as being "morally and ethically correct," I guess Bush is.
If getting in the White House by winning a lawsuit after depriving thousands of their right to vote, qualifies you as being "morally and ethically correct," I guess Bush is.
Research the Bush family a little bit. Find out about Laura Bush's homicide via hit and run. Notice what agency G.W.H. Bush headed in the 1970s. Find out where Prescott Bush got his money from. Look at how much the Carlyle Group and Halliburton have received as a result of the W.'s war. See if you still think they're qualifies you as being "morally and ethically correct."
-- haaz.