Forensic Accounting and Fraud Examination, 2nd Edition

7Financial Statement Fraud

WorldCom and Time Magazine’s “Person of the Year”: Cynthia Cooper

In the 1990s, WorldCom became one of the dominant players in the telecommunications industry through acquisitions.¹ Between 1991 and 1997, WorldCom spent almost $60 billion in the acquisition of as many as 65 companies, accumulating more than $40 billion of debt in the process.² Acquisitions of MFS Communications and MCI were particularly important. Through MFS Communications, WorldCom obtained UUNet, a major supplier of Internet services to business. With MCI Communications, WorldCom was able to tap the residential phone market. By 1997, WorldCom’s stock had risen to more than $60 a share. As a result, the company and its CEO, Bernie Ebbers, became the darlings of Wall Street.³ Ebbers was a self-made man; a one-time high school coach, club bouncer, and milkman, his entrepreneurial spirit and propensity to take risks propelled WorldCom to its height of success.

Then in 2000, for antitrust reasons, the U.S. government refused to allow WorldCom to acquire Sprint, another successful giant in the telecom industry. Acquisitions had been the fuel and mainstay of WorldCom’s revenue and profits growth. Unable to achieve growth through acquisitions, WorldCom foresaw the possibility of disappointing Wall Street. Rather than reorganize, develop a new strategy, or “come clean,” Ebbers, Scott Sullivan (WorldCom’s CFO), and others perpetrated a fraud estimated to be worth more than $11 billion.