WorldCom Accounting Scandal
The Story
WorldCom, the USA's second-largest long-distance phone company, engaged in massive accounting fraud to maintain its stock price. CEO Bernard Ebbers pressured CFO Scott Sullivan to hide rising costs by classifying routine operating expenses as long-term capital investments.
This illegal accounting trick made the company appear profitable when it was losing money. The fraud was uncovered by an internal audit in 2002, leading to the largest bankruptcy in U.S. history at that time.
🚩 Red Flags
- Aggressive, growth-at-all-costs culture
- Extreme pressure to meet Wall Street expectations
- Complex and confusing financial reports
- Whistleblowers being ignored or silenced
- CEO's personal financial ties to company stock price
⚖️ The Fallout
The company filed for bankruptcy, wiping out $180 billion in investor value. 30,000 employees lost their jobs. Bernard Ebbers was sentenced to 25 years in prison. CFO Scott Sullivan received a 5-year sentence after cooperating.
📚 Lessons Learned
Along with Enron, this scandal was a direct catalyst for the Sarbanes-Oxley Act, which imposed stricter financial reporting and internal control requirements on public companies.
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