Subject:  Massive fraud at WorldCom 'went unchallenged' |
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JT gaylord
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Date Posted: 16:48:20 06/09/03 Mon
Massive fraud at WorldCom 'went unchallenged'
By Peter Thal Larsen in Chicago and Jonathan Moules in New York
Published: June 10 2003 0:02 | Last Updated: June 10 2003 0:02
Senior executives at WorldCom, led by Bernard Ebbers, orchestrated a $9bn fraud which for years went unchallenged by its employees, auditors or board of directors, say two reports into the telecom group's collapse.
The reports, the result of parallel year-long investigations into WorldCom's failure, paint a picture of a gung-ho corporate culture dominated by Mr Ebbers and chief financial officer Scott Sullivan willing to cut almost any corner to hide the company's deteriorating business from Wall Street investors and analysts.
Both reports generally support the theory that WorldCom's fraud was devised and carried out by a relatively small group of senior executives. But they will also be deeply embarrassing for ordinary employees of WorldCom, which has since been renamed MCI, who did nothing to challenge questionable financial decisions.
"That the fraud continued as long as it did was due to a lack of courage to blow the whistle on the part of others in WorldCom's financial and accounting departments; inadequate audits by Arthur Andersen; and a financial system whose controls were sorely deficient," writes William McLucas, whose report was commissioned by WorldCom's independent directors.
Meanwhile the report by Richard Thornburgh, the former US attorney general who was appointed as an independent examiner by the bankruptcy court, brands WorldCom as "a poster child for corporate governance failures" and that the failure of internal controls fostered a culture that "permitted the fraud to grow dramatically".
Multi-billion dollar transactions were approved by WorldCom's board after discussions of 35 minutes or less, and, in the case of the $6bn acquisition of Intermedia in 2000, without directors receiving a single piece of paper outlining terms or the implications of the deal.
"Every level of 'gatekeeper' that had the responsibility to promote and ensure proper corporate governance was derelict in his duties to some degree," Mr Thornburgh's writes. "Compounding the problem, a culture existed at WorldCom in which many who were aware of acts of wrongdoing and neglect stood silently by and took no steps to object."
The two reports, which have a combined length of 558 pages, provide some evidence that Mr Ebbers may have known of the fraud. According to the McLucas report, Mr Sullivan left a voicemail for Mr Ebbers in June 2001 which warned that the "accounting fluff" and "one-time stuff and junk that's already in the numbers" would not be enough to disguise the company's deteriorating revenue picture. Mr Sullivan warned: "We are going to dig ourselves into a huge hole."
Three weeks later Mr Ebbers sent a memo to Ron Beaumont, WorldCom's chief operating officer, asking him to "see where we stand on those one-time events that had to happen in order for us to have a chance to make our numbers". A lawyer for Mr Ebbers, who has not been charged, could not be reached for comment.
According to Michael Capellas, the former Compaq chief executive who took over as WorldCom's chairman and chief executive last December, said the company had fired 30-50 employees who had been implicated by the reports.
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