brf worldcom
TRANSCRIPT
-
8/12/2019 BRF WorldCom
1/20
CORPORATE CRIME &
FAILURE OFCORPORATE
GOVERNANCE
-
8/12/2019 BRF WorldCom
2/20
What is Corporate
Governance?
Corporate governance refers to the system bywhich corporations are directed and controlled.
It provides the structure through whichcorporations set and pursue their objectives.
-
8/12/2019 BRF WorldCom
3/20
CASE STUDY :WORLDCOM
SCANDAL
-
8/12/2019 BRF WorldCom
4/20
Companys profile
1993- 4 th largest with $1.5 billion revenue
1998- WorldCom and MCI announced its merger
1995: Changed its name to LDDS WorldCom
-
8/12/2019 BRF WorldCom
5/20
From 1988-2002- 70 mergers and acquisitionspurchased 30 companies
Second largest telecommunication provider in the USafter AT&T in 1998 and 2002.
2000- Both companies terminated the merger process.
MCI WorldCom renamed itself simply "WorldCom".
1999, Sprint and MCI WorldCom announced amerger agreement, but remained unsuccessful.
-
8/12/2019 BRF WorldCom
6/20
Total Bandwidth ,Connections & Revenues.Year: 2002
-
8/12/2019 BRF WorldCom
7/20
CEO: BERNI EEBBERS
CF O: SCOTTSULLIVAN
-
8/12/2019 BRF WorldCom
8/20
H ow it started?
As WorldCom was enjoying name and fame there was huge pressures both externally and internally to be no.1.
Competition
Merger or acquisition
Expenses of line costs
Pressure to meet expectation of Wall street
-
8/12/2019 BRF WorldCom
9/20
Revenues fall short of expectations, while debt remains.
With failure of sprint merger it faced a severe setback.
Shareholders expectation
Profits
-
8/12/2019 BRF WorldCom
10/20
Line costs?
WorldCom
customer in ChicagoWorldCom
customer in London
Local network
in Chicago
WorldComs
networkBritish
network
-
8/12/2019 BRF WorldCom
11/20
HOW COOKING THE BOOKS WORKS!
Revenues xxx(no change) COGS xxx
(no change)
Computer expenses:xxx
(Huge Decrease)
Fees companies phonenetworks: xxx
(Huge Decrease)
NET INCOME
xxx
(Huge Increase )
CFOs directions
affected the incomestatement:
-
8/12/2019 BRF WorldCom
12/20
Fraud
First, WorldCom'saccounting department
underreported 'linecosts
Second, The companyinflated revenue by $ 1
billion.
-
8/12/2019 BRF WorldCom
13/20
H ow was it discovered?
Then Securities and Exchange Commission(SEC) launched an investigation.
Firstly by WorldCom's own internal auditdepartment- uncovered $3.8 b. of the
fraud.
-
8/12/2019 BRF WorldCom
14/20
Largest Bankruptcy Filings
Company Assets(Billions)
When Filed
1. WorldCom $103.9 July 20022. Enron $63.4 Dec. 20013. Conseco $61.4 Dec. 20024. Texaco $35.9 April 19875. Financial Corp of
America$33.9 Sept. 1988
6. Global Crossing $30.2 Jan. 20027. PG&E $29.8 April 2001
-
8/12/2019 BRF WorldCom
15/20
On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection, thelargest such filing in United States history .
The company emerged from Chapter 11 bankruptcy in 2004 becoming MCI.
On March 15, 2005 Bernard Ebbers (CEO) was found guilty of all charges andconvicted on fraud, conspiracy and filing false documents with regulators. He wassentenced to 25 years in prison.
December 2005, the Microsoft announced that MCI will join it by providing WindowsLive Messenger customers "Voice Over Internet Protocol" (VoIP) service.
-
8/12/2019 BRF WorldCom
16/20
Consequences with regard to :
Stock Employees Shareholders
Company
-
8/12/2019 BRF WorldCom
17/20
How DidThe Government
Respond?
Sarbanes Oxley Act
-
8/12/2019 BRF WorldCom
18/20
Sarbanes Oxley Act
Section 302: Your CEO and CFO must sign statementsverifying the completeness and accuracy of financialreports.
Sections 404 CEOs, CFOs and outside auditors mustattest to the effectiveness and accuracy of financialreports.
Section 409: Companies must report material changes intheir financial conditions on a rapid and current basis.The act calls it real -time disclosure but is unclear onwhat it means.
Highlights
-
8/12/2019 BRF WorldCom
19/20
Sarbanes Oxley Act
Behavior ConsequenceAny CEO or CFO who recklessly violateshis or her certification of the companys
financial statements.
If willfully violates.
Fine of up to $1,000,000 and/or up to 10years imprisonment.
Fine of up to $5 million and/or up to 20 yearsimprisonment.
Any person who corruptly alters,destroys, conceals, etc., any records ordocuments with the intent of impairing theintegrity of the record or document or use in
an official proceeding.
Fine and/or up to 20 years imprisonment.
Sarbanes Oxley Law
-
8/12/2019 BRF WorldCom
20/20
Big expectations-bigger frauds