White Collar Crime: Accounting Scandal of WorldCom

White Collar Crime: Accounting Scandal of WorldCom

Introduction

There were several corporate scandals, which were disclosed in 2002. However, the case of WorldCom is notably the most prominent among all those scandals. The major reason for that prominence is attributed to its popular and reputable senior executive Bernard Ebbers. Another notable feature of this scandal is the sophistication in this white collar crime. Ebbers did not demonstrate any evitable sign of his corruption in any form of luxury. It was all précised to papers; instead of personal resources (Moberg & Romar, 2002). His efforts and reputation since he began his business under the name of WorldCom had been admired, and the corporation was nourishing. However, all of the admirations were stunned in 2002, when this scandal was disclosed (Lyke & Jickling, 2002). In this regard, this paper is aimed to provide the description of WorldCom scandal along with the role of law, which became involved. It will also describe the social responses and the response of the corporation to restrain the damage.

Background

The concept of well known telecommunication company WorldCom was initiated in 1983 under the planning of two businessmen, Murray Waldron and William Rector. The initial actualization of this idea was started by the name of Long Distance Discount Service (LDDS) in 1984. Bernard Ebbers was the early investor of LDDS, which caused the two businessmen to designate him as the CEO of this company in 1985. After this, the company significantly grew by several acquisitions and coalitions with other telecommunication companies (University of New Mexico, 2011). Finally, the company endured a grand merger with another telecommunication giant known as MCI in 1997. After this merger, LDDS was renamed as WorldCom and the conglomerate company of the merger was named as MCI WorldCom (Laws.com, 2013).

The formation of MCI WorldCom also followed another sufficient merger; however, the regulations of government prohibited the coalition of Sprint Telecommunications with MCI WorldCom in 1999. Since that time, MCI WorldCom demonstrated unraveling structure of commercial development till 2002 (Laws.com, 2013). In the mid of 2002, WorldCom publically announced its fraud about the earnings of 2001. The announcement confirmed that this telecommunication giant had overstated its earnings of 2001 and its earnings in the first quarter of 2002. The value of overstated amount was more than 3.8 billion dollars. Later that year, another confession was made by the company about the manipulation of reserve accounts, which estimated the addition of 3.8 billion dollars to the value of fraud (Lyke & Jickling, 2002).

The Fraud, Identification, and Consequences

This accounting scandal was actually a financial scandal, in which the CEO Bernard Ebbers was highly involved. Its inducement can be identified in the history of MCI WorldCom. After the merger of two companies, Bernard Ebbers remained the CEO of the company and he received an enormous amount of stock for the company, and he also earned a significantly large amount of capital. These incorporations, due to the merger, resulted in the elevation in stocks, ...