Feeds

WorldCom black hole even more massive – court report

Misstating the obvious

  • alert
  • submit to reddit

New hybrid storage solutions

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

The next step in data security

More from The Register

next story
Phones 4u slips into administration after EE cuts ties with Brit mobe retailer
More than 5,500 jobs could be axed if rescue mission fails
JINGS! Microsoft Bing called Scots indyref RIGHT!
Redmond sporran metrics get one in the ten ring
Driving with an Apple Watch could land you with a £100 FINE
Bad news for tech-addicted fanbois behind the wheel
Murdoch to Europe: Inflict MORE PAIN on Google, please
'Platform for piracy' must be punished, or it'll kill us in FIVE YEARS
Phones 4u website DIES as wounded mobe retailer struggles to stay above water
Founder blames 'ruthless network partners' for implosion
Found inside ISIS terror chap's laptop: CELINE DION tunes
REPORT: Stash of terrorist material found in Syria Dell box
Sony says year's losses will be FOUR TIMES DEEPER than thought
Losses of more than $2 BILLION loom over troubled Japanese corp
Show us your Five-Eyes SECRETS says Privacy International
Refusal to disclose GCHQ canteen menus and prices triggers Euro Human Rights Court action
prev story

Whitepapers

Providing a secure and efficient Helpdesk
A single remote control platform for user support is be key to providing an efficient helpdesk. Retain full control over the way in which screen and keystroke data is transmitted.
WIN a very cool portable ZX Spectrum
Win a one-off portable Spectrum built by legendary hardware hacker Ben Heck
Saudi Petroleum chooses Tegile storage solution
A storage solution that addresses company growth and performance for business-critical applications of caseware archive and search along with other key operational systems.
Protecting users from Firesheep and other Sidejacking attacks with SSL
Discussing the vulnerabilities inherent in Wi-Fi networks, and how using TLS/SSL for your entire site will assure security.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.