WorldCom: The Legal Happenings
In recent years there has been a great deal of concern over the events that have occurred in corporate America. Among these events was the accounting scandal that took place at WorldCom. The purpose of this discussion is to examine the legal happenings at WorldCom. Let us begin our discussion with some background information about the WorldCom Scandal. According to an article published in the journal Issues in Accounting Education WorldCom was once a giant in the telecommunications industry. However, following several mergers, difficulties began to arise. The article explains that in July of 2000 the percentage of WolrdCom's total revenue began to rise; this resulted in a decrease in the company's rate of growth as it related to earnings. This decrease in earnings became a significant risk for WorldCom and it became apparent that its earnings would to meet the prediction of analysts and as a result the market price of WorldCom's securities would decrease. The article further explains that the company was then under a great deal of pressure to maintain a certain appearance as it related to the financial conditio
We began our discussion with some background information about the WorldCom Scandal. "10The judge also explained that Ebbers could have received a thirty year sentence. The lawyers asserted that this telecommunications analyst for the company and Salomon Smith Barney assisted with WorldCom's accounting fraud "by making material misrepresentations in analyst reports and registration statements for public securities offerings. Another performance pressure came from the fact that WorldCom marketed itself as a high-growth company, with revenue growth playing a significant role in WorldCom's early success. However, the judge removed 5 years from the sentence after receiving dozens of letters from friends and neighbors that expressed the good things that Ebbers had done throughout the years. The fraudulent acts led to a plethora of lawsuits both criminal and civil. CEO Ebbers pledged his vast holdings of WorldCom stock as collateral for loans to finance the purchase of his personal outside business interests. The article explains that of this $5 million $3 million was to be paid within three days of the initial approval of settlement. Discussion and ConclusionThe purpose of this discussion was to examine the legal happenings at WorldCom. As part of this quid pro quo relationship, Salomon Smith Barney allegedly funneled shares in initial public offerings to top WorldCom executives and loaned Ebbers hundreds of millions of dollars -- all to help ensure that WorldCom sent its investment banking business to Salomon Smith Barney. In addition, four additional high-ranking employees for the company were also sentenced in the summer of 2005. If WorldCom's stock price fell substantially, the collateral would be of insufficient value to secure his loans, thus forcing margin calls that he could not meet. The research indicated that the company began to have difficulty when there was a decrease in the company's rate of growth as it related to earnings. "11 The article also explains that the settlement made by Citigroup is inclusive of investors who bought $1. In an attempt to meet the expectations of analysts the company used fraudulent accounting practices to hide billion of dollars in debt.
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