Take the hammer to WorldCom

✍ Scribed by Gilbert Held

• Publisher: John Wiley and Sons
• Year: 2003
• Tongue: English
• Weight: 28 KB
• Volume: 13
• Category: Article
• ISSN: 1055-7148
• DOI: 10.1002/nem.489

✦ Synopsis

From The Editor

Take the hammer to WorldCom W hen I was growing up my parents were periodically reminding me that 'saving a penny here and a penny there' could result in serious money. If we fast forward to modern times my parents would be aghast to learn that one of their favorite expressions was literally used by a Fortune 100 corporation in modified form. Judging from news reports it appears that the massive accounting fraud perpetuated by WorldCom was based upon the adage 'hide a little here, hide a little there', with all of the hiding cumulatively totaling serious money.

While the accounting fraud at WorldCom has reached a record level exceeding $7 billion, it also appears that this literal den of thieves also falsified profits to the tune of several billion dollars. Although this fraud has vast implications for hundreds of thousands of investors as well as numerous decent and hardworking employees whose life savings literally went down the tubes, it also contributed to many of the problems other legitimate companies in the telecommunications industry face. Let me explain.

By providing the appearance of profitability while cooking the books, WorldCom caused other companies to either lose business or attempt to match unrealistic pricing. As WorldCom borrowed tens of billions of dollars, they in effect were using borrowed funds to perpetuate a hoax. For the last four or perhaps five or six years, they were far from being profitable but were cooking the books to appear profitable, in effect causing chaos to other companies. Now under bankruptcy reorganization WorldCom will attempt to wipe out its debts by converting bondholder securities and other creditors' obligations into stock. In effect, if this plan goes through, WorldCom will be like a cat, obtaining yet another life. Unfortunately, for legitimate communications carriers, this means they will have to compete with a debt-free company that cooked its books. It is important to remember that while WorldCom was perpetuating its massive fraud, such legitimate companies as AT&T, Sprint, British Telecom and France Telecom had to lower their rates and borrow heavily in an attempt to remain competitive. Why should such companies have to suffer a second time at the hands of FraudCom? Well, I have a better idea.

The bankruptcy court should break up this evil empire, either directly or by soliciting bids for different pieces of the company. In addition, because it is highly doubtful if a near $10 billion fraud could be kept from public view without the complicity of senior management, the companies acquiring pieces of WorldCom need to carefully investigate the ethics of any person they retain. As my Macon TV announcer would say, 'That's my opinion-what's yours?' -Gilbert Held