Case 4-WorldCom: Can You Hear the Lawsuits Now? 30 points) Read \"WorldCom: Can

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Case 4-WorldCom: Can You Hear the Lawsuits Now? 30 points) Read "WorldCom: Can You Hear the Lawsuits Now?" pages 420-437 in Understanding Business Ethics. Thoroughly answer the questions that follow the Case Summary below Case Summary WorldCom will forever be linked with Tyco and Enron as part of the big three corporate scandals to hit the United States. WorldCom and Enron were used as the basis to draw from when the Sarbanes-Oxley Act was being developed. Long Distance Discount Service (LDDS) started in Hattiesburg, Mississippi in 1983. Bernie Ebbers gained control of the company which would be renamed as WorldCom. Bernie Ebbers started an aggressive acquisition program. WorldCom bought MCI in 1997 for $37 billion. On February 1, 2002, Bernie Ebbers made a repayment of over S180 million in loans from Bank of America. During the same time period, WorldCom had $28 billion in debt. In March 2002, the SEC launched inquiries into WorldCom's accounting practices. It was disclosed that WorldCom had given Bernie Ebbers a loan of $366 million at an interest rate of 2.14%. On April 4, 2002, WorldCom announced that it would lay off 4% of its employees (3,700) due to a slowdown in the economy and excess capacity of the industry. On April 29, 2002, Bernie Ebbers was forcesd to resign as CEO, president and company board member. On June 25, 2002, WorldCom unveiled its $3.8 billion accounting fraud WorldCom's CFO, Scott Sullivan, was fired afler the results of the probe were released WorldCom's auditor, Arthur Andersen, stated that Sullivan gave them false information WorldCom's VP of internal auditing, Cynthia Cooper, discovered the fraud by spot checking the bookings in the capital expenditure account. One of WorldCom's biggest expenses, charges paid to local telephone systems to complete a phone call was recorded as capital expcnditures and not expenses. WorldCom's competitors had complained to the SEC about how everyone in the telecommunication industry was losing money except WorldCom Andersen used a "risk based" model of auditing. Risk based auditing is based on the assumption that problems are most likely to occur in high risk areas, so that the auditors would focus most 607-30-6

Explanation / Answer

In the context of th given case,

1. Ebbers has been described as an aggressive acquisition expert than a CEO. He violated accounting practices, untimely employee layoffs and taking loans whch depicts that he was more focussed on acquiring and expanding the strength of Worldcom than to run it effectively. He was latera asked to resign from his CEO position.

2. The impacts and projections of Breeden report has not been given in the case study above.

3. Cynthia Cooper has been described as an expert auditor and I definitelty agree that she is an ethics examplar. She had caught a major accounts manipulation in the acounting records of Worldcom of how a phone call expense was recorded as a capital expenditure which is a major breach. That was a major reason how Worldcom's conspiracy was revealed.  

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