Case Study Of The Worldcom Scandal

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WorldCom is an U.S.-based telecommunications company, which was the second-largest long-distance phone company in the country until an enormous accounting scandal led to the company filing for bankruptcy protection in 2002. The WorldCom scandal is known as one of the worst corporate crimes in history, and several former executives involved in the fraud were held responsible for their involvement. WorldCom overstated assets by as much as $11-12.8 billion, leading to 30,000 lost jobs and $180 billion in losses for investors. Under the bankruptcy reorganization agreement, the company paid $750 million to the Securities and Exchange Commission (SEC) in cash and stock in the new MCI, which originally was planned to be funded to former investors. …show more content…
WorldCom intended to use the money for covering obligations such as new services and employee wages. In total six people were convicted for playing key roles in the fraud. The 63-year-old former CEO of WorldCom Mr. Bernard Ebbers was sentenced for 25 years of prison time for composing the $11 billion fraud that sank the company in 2002, the biggest corporate fraud and bankruptcy in U.S. history. His chief financial officer Scott D. Sullivan was sentenced of five years, a reduced prison time for co operating the investigation and acknowledging his own crimes. Another four members of WorldCom including Buford Yates Jr, David Myers were also convicted from 5 months to 3 years in prison. The internal problems at WorldCom were its lack of a competitive strategy, weak internal controls, an aggressive culture that demanded high returns, and the failure to look out for what was best for the stockholder as well as the stakeholder of the …show more content…
The corporate culture of an organization is crucial for business because it reflects the values and principles of the organization. Worldcom’s top management advocated teamwork, but not in the good way. The employees were to follow what they were told to do and be a good team player. The group conspiring together was a main factor in why the fraud went undetected for such a long period of time. In addition, management participated in fraudulent activities on a regular basis and were pressured to do so by the CEO. Employees were also aware of the accounting irregularities and participated in hiding practices in fear of losing their jobs. In conclusion, the organization 's ideology had poor values, ethics, and promoted fraudulent conduct.

Thirdly, there was a lack of a corporate governance structure. A good corporate governance ensures the sustainability of the company. The failure of corporate governance in WorldCom caused fraud to go undetected. There was no checking and constrains on actions. Ebbers was given high control over the company without the board of directors exercising any restraint on his action. The employee of WorldCom also do not have any initiative to communicate the fraudulent actions because worry about losing

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