WorldCom was the telecommunications company that had it all: over 60,000 employees, operations in more than 65 countries, and a stock price that was soaring higher than a kite on a windy day. But, in 2002, the company’s bubble burst when it was revealed that executives had been cooking the books.
It all began in the late 1990s, when WorldCom was feeling the heat from Wall Street to meet financial targets and boost stock prices. So, the executives at WorldCom decided to take a page out of the “Enron cookbook” and use accounting tricks and insider information to hide the company’s true financial condition. For example, they improperly classified $3.8 billion of expenses as capital expenditures.
The man behind the curtain, Scott Sullivan, WorldCom’s chief financial officer, was responsible for the accounting entries that improperly classified expenses as capital expenditures, which was used to boost earnings and meet Wall Street expectations. He also personally profited from these fraudulent activities, making over $10 million from the scheme.
WorldCom’s accounting firm, Arthur Andersen, also played a role in the fraud. The firm failed to properly audit WorldCom’s financial statements and signed off on the company’s fraudulent accounting practices.
The fraud at WorldCom was finally exposed in 2002, when the company announced that it had overstated its profits by nearly $4 billion. As the news spread, WorldCom’s stock prices plummeted, and the company filed for bankruptcy.