Feeds

WorldCom black hole even more massive – court report

Misstating the obvious

  • alert
  • submit to reddit

Bridging the IT gap between rising business demands and ageing tools

ComputerWire: IT Industry Intelligence

An initial court-ordered report into the rise and fall of WorldCom Inc has detailed a corporate culture that was focused on meeting analysts' expectations at all costs and warned that further massive restatements of the company's previous financial results may be necessary.

The report by Dick Thornburgh, a former US attorney general who was appointed bankruptcy examiner by the US courts in July, coincided with an announcement by WorldCom that it was implementing a program to "restore confidence, rebuild integrity and business practices".

But this may be a forlorn hope in the light of Thornburgh's report. The 122 page report said that as Clinton, Mississippi-based WorldCom grew in size and complexity, its internal controls did not keep up. The company's voracious appetite for acquisitions was opportunistic and did not follow a strategic plan, the report continues, and made it difficult for investors to compare results from year to year. At the same, the firm's stock price was the "fuel" for the acquisitions and the company needed to keep its price high to continue its growth.

Throughout this, former CEO Bernie Ebbers dominated the company, the report said. Critical questioning was discouraged and transactions were not considered by the board in depth. The board's compensation and stock committee "seemed to abdicate its responsibilities to Mr Ebbers," approving compensation that appeared "overly generous and disproportionate to either the performance of the company or competitive pressures."

WorldCom's former auditors Arthur Andersen comes under fire in the report, as does the carrier's primary investment banker, Salomon Smith Barney (SSB). The relationship with SSB was described as "unusually close and problematic."

The report concludes that WorldCom "put extraordinary pressure on itself to meet the expectations of securities analysts," which created an environment where "reporting numbers that met these expectations, no matter how these numbers were derived, apparently became more important than accurate financial reporting."

WorldCom boosted earnings by drawing down on reserves, the report says. When regulators refused to countenance WorldCom's merger with Sprint Communications, which would have replenished and increased its reserves, "WorldCom did not have adequate reserves to draw down as a vehicle to increase earnings." Shortly after, WorldCom began boosting its figures "by converting substantial portions of its line cost expenses into capital items."

The rest is history, with the company being forced to make restatements to the tune of $3.8bn in June, and another $3.8bn soon after, the report said.

Thornburgh and his team are still investigating WorldCom, the report said, "but we believe our investigation will reveal that there were improper and unsupported adjustments that go beyond the more than $7bn in adjustments already restated by the company."

© ComputerWire

Build a business case: developing custom apps

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Airbus promises Wi-Fi – yay – and 3D movies (meh) in new A330
If the person in front reclines their seat, this could get interesting
UK Parliament rubber-stamps EMERGENCY data grab 'n' keep bill
Just 49 MPs oppose Drip's rushed timetable
ITC: Seagate and LSI can infringe Realtek patents because Realtek isn't in the US
Land of the (get off scot) free, when it's a foreign owner
Samsung threatens to cut ties with supplier over child labour allegations
Vows to uphold 'zero tolerance' policy on underage workers
Dude, you're getting a Dell – with BITCOIN: IT giant slurps cryptocash
1. Buy PC with Bitcoin. 2. Mine more coins. 3. Goto step 1
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
prev story

Whitepapers

Seven Steps to Software Security
Seven practical steps you can begin to take today to secure your applications and prevent the damages a successful cyber-attack can cause.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Designing a Defense for Mobile Applications
Learn about the various considerations for defending mobile applications - from the application architecture itself to the myriad testing technologies.
Build a business case: developing custom apps
Learn how to maximize the value of custom applications by accelerating and simplifying their development.
Consolidation: the foundation for IT and business transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.