Slashdot Mirror
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".
...that you never hear of any accounting 'errors' that make the company look less wealthy than it is?
A pizza of radius z and thickness a has a volume of pi z z a
So theres another $50.6 billion down the hole, too.
What I don't get about telecom, esp. the telecom in my area, QWest, is how the hell they are rolling in money. My phone bill is outrageous... and they have a monopoly in the region. I know they're getting at least $40 out of every person with a phone in the midwest... where the hell does all that money go?
The justice department needs to stop being a bunch of whores and realize that "limited liability" has to do with financial, not criminal liability. Fraud is fraud, theft is theft. Put them in the same cell with a guy doing 5 years for forging a check. It makes me sick.
I spent a year in Iraq looking for WMD and all I found was this lousy sig.
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?
Maybe the American press are skirting the issue - but the British press certainly aren't: try
The Guardian ("fraud" appears 5 times) and The Times which even uses the word "scam".
Zack
"... and more and more now there are all kinds of electronic goodies available" -- Pink Floyd 1972
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
Do you need more examples? I can provide plenty!
sPh
What bugs me the most about all this is how people still don't seem to make a big deal about it. Here's a good way to think:
Imagine every crime that has been committed against you that cost you money. This can include having your bicycle stolen, your car stolen for a joyride and crashed into a wall... your house vandalized and your stereo ripped off, your credit card number hijacked, your wallet taken in a mugging, etc. Whatever cost you money. Now, try to remember the anger. Try to remember how pissed off you were. How much you would've loved to bash the punk's face in with a brick.
Now listen.
Corporate crime has stolen about twice that from you, and other investors and tax payers. You are an invesor if you have a retirement plan. You are a taxpayer if you have a job. Even if you don't in either case, your sales taxes go to governments, and governments are effected by the stock market. The total monetary cost per year of street crime in the United States is well below the total amount of money lost due to white collar corporate crime. That is money you should have in your assets right now.
The thief, the mugger, at least they have some balls about it - if you catch them, you could very well bash their faces in with a brick, then get them arrested by the police (who kick the living crap out of them if they try to run) and then end up in a federal "pound me in the ass" prison for quite a long time.
The white collar criminal is not caught. If he is, his company gets fined something around 1% of their earnings this quarter. If he personally is caught, he just gets sent to a minimum security country club for a few months.
And people don't seem very mad about this.
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
It goes into twenty to fifty $250 rounds of golf at Hilton Head Golf Club under the guise of a "management retreat."
It goes into the corporate learjet that whisks some of these officers away to the above two destinations.
It goes into the CEO's million dollar annual pension whether he retires a hero or gets the pink slip for delivering his company to chapter 11.
It trickles...straight up.
The tragedy isn't that this stuff happens. It is part of the human condition. Admit it. Most of us would do the same if we were in these fuckers shoes. The real tragedy is that we won't challenge this behavior until it is too late to make meaningful amends. Think Charles Dickens.
Naw, the problem isn't a lack of government bailouts -- it's your misunderstanding of WHY they bail these COs out.
Public Utilities? Fuck, those only affect PEOPLE. People can survive. Lockheed's failure directly affects the GOVERNMENT...it affects necessary defense contracts, and can you imagine the auction sales of Lockheed plans for those killer jets the second the plant closes?
Your problem is being too much of a humanist. Come over to the dark side of cynical realism, it's much more profitable.
Hey freaks: now you're ju