Worldcom Case Study
By using the stock of WorldCom he was going to pay for the acquisitions. To achieve this buying extravaganza, the stock had to repeatedly increase in value.
In 1998, WorldCom acquired MCI Communications, a company which was more than 2.5 times the profits of WorldCom. Ebbers' acquisition strategy mainly came to an end by early 2000 when WorldCom was forced to discard a proposed amalgamation with Sprint because of antitrust objections.
Ebbers felt the need to show increasing income and revenue. His only option to achieve this end was financial gimmickry. …show more content…
This was the reason he had to show continuous growing net worth in order to keep away from margin calls on his own WorldCom stock that he had pledged to protect loans.
4. Madoff Case
Madoff used a Ponzi scheme, which invites investors in the schemes by promising abnormally higher returns. This scheme was promised by Charles Ponzi, who promised fifty percent returns on investments in only 90 days.
A central operator runs the Ponzi, who will use the money from new investors to reimburse the promised returns to the older ones. This makes the process appear legitimate and profitable, even when no actual profit is being made. In the meantime, the person who is behind the method takes the extra money or will use it for the expansion of the operation.
To stay away from having too many investors retrieve their profits, Ponzi schemes give confidence to them to stay in the match and earn even more money. The strategies for investing used by them are vague and secretive, which they say is to protect their businesses. All they need to do is tell investors how much they are making at regular intervals, without actually providing any real …show more content…
He was acquitted by the jury on two other securities fraud counts. On May 21, the case went on trial, less than a month ago - an interesting reminder to us in India that it shouldn't take years to decide if someone is innocent or guilty.
II. Indian Frauds
1. Satyam scam
The Satyam scandal was a Computer Services scandal and is one of the major corporate scandals in the history of India. It occurred in 2009 under the chairman ship of Ramalinga Raju who later on confessed that the accounts of the company have been falsified by US$1.47 billion. The following timeline gives an idea of the events that took place:
• Dec 16 – Satyam acquires Maytas Properties for $1.6 billion by the approval of government.
• Dec 17 – Defers acquisition on stiff investor resistance
• Dec 18- Buy back shares of Satyam & Upaid files a law suit against Satyam for the Maytas deal
• Dec 24 – World Bank bans Satyam for 8 years on charge of Data theft.
• Dec 25 - Mangalam Srinivas, non-executive & independent director resigns from Board.
• Dec 29 – A number of executives resigned from the company.
• Jan 6 - Chairman Raju’s holding fell to 3.16% which was a part of their family