The Worldcom scandal not only rocked America, it’s vibrations
reached out across the world. Here was one of the most respected names
in American business and a name respected around the globe as a giant
in the field of telecommunications and now it was filing for
protection from its creditors in bankruptcy proceedings. The history of
the companies that made up Worldcom was somewhat convoluted. The story
really starts in 1983 when a discount telephone service, Long Distance
Discount Service, was founded in Hattiesburg MS - in 1984, Bernie
Ebbers became Chief Executive Officer. In 1989 LDDS merged with
Advantage Co and the stock was quoted publicly for the first time. In
1992 LDDS merged with both Metromedia Communications inc and Resurgens
Communications - the stock had now risen to $36. The name Worldcom
appeared for the first time in 1995 when LDDS bought Wil Tel’s
Fibreoptic network and the new name was adopted - the stock price now
was $28.97. September 1998 saw Worldcom buy MCI for $37 billion - the
stock in the new conglomerate had reached $48.88 and then on June 18th
1999, the stock in Worldcom reached its peak of $63.50 valuing the
business at $125 bn.
In was in March 2002 that SEC made the first enquiries into Worldcom’s
accounting practices and the stock fell to $6.74. Investigations
covered a numbers of issues including loans to executives but it
transpired that Worldcom had been involved in multiple doubtful
activities including overstating the businesses asset evaluation by
some $3.8 billion. By April 30th, things had got to a point of no
return and Bernie Ebbers did the only thing possible by resigning - the
stock price had fallen to £2.74. June 25th saw the end for
practical purposes - the share price was 83 cents at the bell and fell
to 21 cents in after hours trading. The business needed billions of
dollars to keep it going and, whilst some was offered, nobody was
willing to make the major contributions necessary. MCI was salvaged as
a long distance telephone service provider - the rest being broken up
and sold off for what ever could be raised. One of the issues was the
jobs of 85,000 people - the country didn’t need those added to its
unemployment statistics at that time. The shake out was dramatic and
the echoes reverberated all the way up - even President Bush made
promises that the whole issue of accounting and integrity in American
business would be examined. Coming as it did, so shortly after the
Enron debacle, not to mention Global Crossing and Tyco, the country was
faced with a crisis of confidence in the honesty of its major
corporations. Who might be next it was asked but really, nobody wanted
an answer.
After lengthy negotiations, offers, counter offers, recriminations and
counter accusations, the whole matter was placed in the hands of the
Federal Administrators. The company was actually charged with fraud.
Ebbers was sentenced to twenty five years in gaol - breaking down into
tears as the sentence was handed down.
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