March 2nd, 2003
WorldCom
Introduction
Based out of Mississippi, WorldCom was put together by Founder Bernard Ebbers. Growing rapidly through mergers and acquisitions Mr. Ebbers pulled off what was considered quite a coup when his smaller WorldCom group took over MCI. A powerhouse in long distance and controlling over 70% of the internet traffic through its UUNET division WorldCom was a very widely held public company. Leading up to the telecom bubble WorldCom was a big spender, paying a fortune to control the internet backbone that thought would be so profitable. Doing so required issuing a lot of debt, which eventually cause a lot of problems later on. Despite this debt while other telecoms (especially long-distance carriers) were reporting losses WorldCom kept posting billion dollar profits earning them strong buy ratings by analysts and a "top 50" ranking by Goldman Sachs (Goldman Sachs 2001) As three WorldCom employees eventually proved the profits were fictitious and being widely held only meant that more shareholders would lose their money.
Fraud is first uncovered
Starting back in March 2002 "John Stupka, the head of WorldCom's wireless business paid a visit Cynthia Cooper. He was angry because he was about to have $400 million dollars that was set aside to cover losses taken away to boost WorldCom's profits" (WorldCom Sleuth 2) This upset Mr. Stupka because this would then make his division post a large loss in the next quarter. Ms. Cooper was head of the internal audit department of WorldCom. Unlike external auditors, internal auditors are actual employees of the company they audit for. In addition while external auditors are concerned only wit ...