The publicity surrounding the uncovering of the WorldCom fraud resulted in greater auditor oversight over American corporations and greater government oversight over auditors. In 2002, Congress passed the Sarbanes-Oxley Act, which held senior executives responsible for the accuracy and completeness of corporate financial reports.
In 2002, WorldCom was the second-largest long-distance phone company in the United States. It had achieved this size largely by acquisitions, such as that of MCI Communications in 1998. However, the
On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy, with $107 billion in assets, making it the largest bankruptcy in U.S. history at the time (exceeded by the bankruptcy of Lehman Brothers, with assets of $639 billion, in 2008). After WorldCom entered into bankruptcy, additional audits found other schemes that brought the total fraud to more than $11 billion.
Bernard Ebbers, former WorldCom CEO, leaves Manhattan federal court in 2006.
In 2005, Sullivan was convicted of securities fraud, conspiracy, and seven counts of filing false reports with regulators, and Chief Executive Officer Bernard
The bankruptcy of WorldCom has often been attributed to its fraudulent accounting. However, most likely neither the fraud nor its discovery are responsible for the downfall. The company’s stock was already falling. Corporate decisions, such as loading the company with debt and making inappropriate acquisitions; the Internet mania that swept the country at the time; and the implosion of the telecommunications industry all played a role in reducing the company’s value. It seems likely that the company was going to go bankrupt because of poor management and that the fraudulent accounting acted primarily to hide the depth of WorldCom’s financial troubles from the world for a while.
Colvin, Geoffrey. “The Other Victims of Bernie Ebbers’ Fraud.” Money, August 8, 2005. Cooper, Cynthia. Extraordinary Circumstances: Journey of a Corporate Whistleblower. New York: John Wiley & Sons, 2008. Jeter, L. W. Disconnected: Deceit and Betrayal at WorldCom. New York: John Wiley & Sons, 2003.
U.S. Department of Justice
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