WorldCom Fraud & Bankruptcy (21/07/2001); Assets: $107 billion Long Distance Discount Services, Inc. (LDDS) began in Hattiesburg, Mississippi. in 1983. The company name was changed to LDDS WorldCom in 1995, and later just WorldCom. The company’s growth under WorldCom was fueled primarily through acquisitions during the 1990s and reached its apex with the acquisition of MCI in 1998. WorldCom’s financial scandals and bankruptcy led that company to change its name in 2003 to MCI. The MCI name disappeared in January 2006 after the company was bought by Verizon. WorldCom’s bankruptcy filing in 2002 (21st July 2002) was the largest such filing in U.S. history. The WorldCom scandal is regarded as one of the worst corporate crimes in history, and several former executives involved in the fraud faced criminal charges for their involvement. Evidence shows that the accounting fraud was discovered as early as June 2001, when several former employees gave statements alleging instances of hiding bad debt, understating costs, and backdating contracts. In 2002, a small team of internal auditors at WorldCom worked together, often at night and in secret, to investigate and unearth $3.8 billion in fraud and the U.S. Securities and Exchange Commission (SEC) launched an investigation into these matters on June 26, 2002. By the end of 2003, it was estimated that the company's total assets had been inflated by around $11 billion. As a result, the SEC filed a civil fraud lawsuit against WorldCom and federal charges were filed against several executives. The fraud was accomplished primarily in two ways:
Underreporting ‘line costs’ (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them. 2.
Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts". Some of the high-ranking WorldCom executives and other employees who are implicated in the accounting...
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