INDEPTH: WORLDCOMThe WorldCom story

Introduction of person’s Introduction of person’s profile.profile.

1983:

Bernie Ebbers, a former basketball coach from Edmonton, buys a long-distance resale service that he names

Long-Distance Discount Services (LDDS)

1985:Ebbers becomes chief executive officer of LLDS.

Bernie Ebbers

Worldcom’s creation….Worldcom’s creation….

• Early 1990s:Early 1990s:Ebbers creates WorldCom, Ebbers creates WorldCom, combining LLDS with two smaller combining LLDS with two smaller companies - MFS Communications companies - MFS Communications and UUNet.and UUNet.

• 1994:1994:LLDS becomes one of the top four LLDS becomes one of the top four long-distance companies in the U.S.long-distance companies in the U.S.

• 1995:1995:WorldCom is fined $50,000 USWorldCom is fined $50,000 US and and ordered ordered to repay $70,000 USto repay $70,000 US in in investigative costs for its role in gathering investigative costs for its role in gathering employee campaign contributions for a employee campaign contributions for a

candidate running for the candidate running for the Mississippi Mississippi Public Service Commission in 1991.Public Service Commission in 1991.

Company’s journey….Company’s journey….

• 1995-2000:1995-2000:

WorldCom buys more than WorldCom buys more than 60 companies,60 companies, often using its often using its own soaring share price to help fund own soaring share price to help fund the acquisitions.the acquisitions.

Create Big History……..Create Big History……..

• 1997:1997:

WorldCom takes over MCI WorldCom takes over MCI Communications for $37 billion Communications for $37 billion USUS - at the time - at the time the largest takeover the largest takeover in American corporate history.in American corporate history.

Famous personality in Famous personality in Forbes News..Forbes News..

• 1999:1999:

Forbes magazine cites Bernie Forbes magazine cites Bernie Ebbers's fortune at $1.4 Ebbers's fortune at $1.4 billion US.billion US.

• 2000:2000:

U.S. communications U.S. communications regulators veto WorldCom's regulators veto WorldCom's $129-billion US$129-billion US offer for Sprint offer for Sprint Corp., which WorldCom had hoped Corp., which WorldCom had hoped would add wireless and local phone would add wireless and local phone assets to the mix.assets to the mix.

Big Loss For Company….Big Loss For Company….• Fall 2000:Fall 2000:

WorldCom warns its earnings will fall WorldCom warns its earnings will fall short of estimates by 40 per cent,short of estimates by 40 per cent, and that and that 2001 earnings would be even lower.2001 earnings would be even lower. Ebbers Ebbers falls into enormous personal debt as he'd falls into enormous personal debt as he'd pledged his WorldCom shares as collateral pledged his WorldCom shares as collateral for loans. WorldCom's board loans him for loans. WorldCom's board loans him $375 million US to pay off his debts,$375 million US to pay off his debts, without making him sell all his shares in the without making him sell all his shares in the company. Ebbers decides to split WorldCom into two company. Ebbers decides to split WorldCom into two components as MCI starts to fall.components as MCI starts to fall.

• Secured loans from WorldCom to Secured loans from WorldCom to fundfund personal investments including a personal investments including a

$100 million Canada ranch, $658 $100 million Canada ranch, $658 million in Mississippi million in Mississippi timberlands and a $14 million timberlands and a $14 million Georgia shipyardGeorgia shipyard

• Netted $140 million from stock salesNetted $140 million from stock sales

• Served as CFO, treasurer and Served as CFO, treasurer and secretarysecretary

• Directed staff to make false Directed staff to make false accounting entries accounting entries

• Personally made false and Personally made false and misleading public statements misleading public statements regarding financesregarding finances

• Netted $45 million from stock salesNetted $45 million from stock sales

Scott Sullivan, CFOScott Sullivan, CFO

• 2001:2001:Ebbers fails to make the Forbes 400 Ebbers fails to make the Forbes 400 richest Americans list.richest Americans list.

Company Tracing in Company Tracing in BankruptcyBankruptcy

• January 2002:January 2002:

WorldCom gets hit with fallout WorldCom gets hit with fallout from the bankruptcy filing of from the bankruptcy filing of Global Crossing, a telecom Global Crossing, a telecom company,company, and from the fact that Ebbers and from the fact that Ebbers might have to sell millions of his WorldCom might have to sell millions of his WorldCom shares to repay personal loans.shares to repay personal loans.

• Company could spin off several Company could spin off several business unitsbusiness units

• April 29, 2002:April 29, 2002:Shares hit all-time low of $2.35, Shares hit all-time low of $2.35, down more than 95 per cent down more than 95 per cent from their peak of $64.50 on from their peak of $64.50 on June 21, 1999.June 21, 1999. Ebbers resigns as Ebbers resigns as CEO after the stock free-fall. He is CEO after the stock free-fall. He is replaced by John Sidgmore.replaced by John Sidgmore.

• June 25, 2002:June 25, 2002:WorldCom discloses that it inflated profits for WorldCom discloses that it inflated profits for more than a year by improperly accounting more than a year by improperly accounting for more than $3.9 billion USfor more than $3.9 billion US. This means that it . This means that it transferred routine expenses to capital expenditures, transferred routine expenses to capital expenditures, making its earnings appear larger than they actually making its earnings appear larger than they actually were. were. WorldCom announces that it will lay off WorldCom announces that it will lay off 17,000 workers within the week17,000 workers within the week. The board . The board fires CFO Scott Sullivan, and controller David Myers fires CFO Scott Sullivan, and controller David Myers resigns. WorldCom shares drop to 20 cents.resigns. WorldCom shares drop to 20 cents.

June 14, 2002 -June 14, 2002 - The Internal audit team contacted The Internal audit team contacted

WorldCom’s audit committeeWorldCom’s audit committeeInternal auditor, Cindy Cooper, asked for Internal auditor, Cindy Cooper, asked for

documents supporting numerous capital documents supporting numerous capital expenditures.expenditures.

No supporting documents were foundNo supporting documents were found

Company’s Adverse Effect Company’s Adverse Effect on Stock Market…..on Stock Market…..

• June 26, 2002:June 26, 2002:

News of the WorldCom News of the WorldCom scandal sends shock waves scandal sends shock waves through stock markets, through stock markets, sending benchmark indices sending benchmark indices to new post-Sept. 11 lowsto new post-Sept. 11 lows. . WorldCom share trading halted. WorldCom share trading halted.

File Case AgainstFile Case AgainstCompany……Company……

• July 2002:July 2002:

WorldCom files for WorldCom files for bankruptcy protection, listing bankruptcy protection, listing $41 billion US in debt.$41 billion US in debt.

• Aug. 8, 2002:Aug. 8, 2002:Auditors find another $3.3 Auditors find another $3.3 billion US accounting billion US accounting irregularityirregularity. The revelations will . The revelations will force the company to restate its force the company to restate its earnings for 2000. The company already earnings for 2000. The company already has to restate its financial results for all has to restate its financial results for all of 2001 and the first quarter of 2002.of 2001 and the first quarter of 2002.

• March 2004:March 2004:

Ebbers pleads not guiltyEbbers pleads not guilty to to charges of fraud and conspiracy in charges of fraud and conspiracy in

connection connection with an $11-billion with an $11-billion US fraud at WorldCom. US fraud at WorldCom.

• May 2004:May 2004:Ebbers charged with falsifying Ebbers charged with falsifying

regulatory filings with the regulatory filings with the U.S. U.S. Securities and Exchange Securities and Exchange Commission in 2001 and Commission in 2001 and 2002.2002.

• March 15, 2005:March 15, 2005:

Ebbers found guilty by a federal Ebbers found guilty by a federal jury of fraud, conspiracy and jury of fraud, conspiracy and filing false documents with filing false documents with regulators.regulators. He faces up to 85 He faces up to 85 years in prison.years in prison.

Judge sentences 25 years in Judge sentences 25 years in jail …..jail …..

• July 13, 2005: July 13, 2005: A New York judge sentences A New York judge sentences Ebbers to 25 years in prisonEbbers to 25 years in prison. She . She says Ebbers has until Oct. 12 to report says Ebbers has until Oct. 12 to report to prison and she would recommend a to prison and she would recommend a low-security federal prison in Yazoo low-security federal prison in Yazoo City, Miss., near his home. Ebbers' City, Miss., near his home. Ebbers' lawyer said he would appeal the verdict.lawyer said he would appeal the verdict.

• Dec. 24, 2005:Dec. 24, 2005:

The Economist mentions The Economist mentions Ebbers’s WorldCom woes in Ebbers’s WorldCom woes in

an article subtitled an article subtitled ““America’s most-hated America’s most-hated

companies.”companies.”

January 2005January 2005 - - 10 former directors agreed 10 former directors agreed to pay to pay $54 million to settle a $54 million to settle a shareholder class-action shareholder class-action lawsuitlawsuit

$18 million to be paid by the directors themselves.

$36 million paid by the liability insurance

• Jan. 30, 2006:Jan. 30, 2006:Judges hearing Ebbers’s appeal question Judges hearing Ebbers’s appeal question whether prosecutors threatened ex-whether prosecutors threatened ex-WorldCom executives with criminal WorldCom executives with criminal charges to keep them from testifying as charges to keep them from testifying as potential defence witnesses. Ebbers potential defence witnesses. Ebbers argues that 25 years is too harsh a argues that 25 years is too harsh a sentence for a white-collar crime.sentence for a white-collar crime.

• July 28, 2006:July 28, 2006:A three-judge panel for a U.S. Appeal A three-judge panel for a U.S. Appeal Court upholds Ebbers’s 25-year prison Court upholds Ebbers’s 25-year prison sentence, clearing the way for Ebbers sentence, clearing the way for Ebbers to begin serving time.to begin serving time. In a note to the court, In a note to the court, Judge Ralph Winter acknowledges the 25-year Judge Ralph Winter acknowledges the 25-year sentence is “longer than the sentences routinely sentence is “longer than the sentences routinely imposed by many states for violent crimes, imposed by many states for violent crimes, including murder,” but not unreasonable given the including murder,” but not unreasonable given the losses to investors. losses to investors.

• Sept. 7, 2006:Sept. 7, 2006:In a public ruling, a federal judge In a public ruling, a federal judge orders Ebbers to report to prison on orders Ebbers to report to prison on Sept. 26. Sept. 26.

Sept. 26, 2006:Sept. 26, 2006:Ebbers enters a federal prison in Ebbers enters a federal prison in Louisiana to begin serving his 25-year Louisiana to begin serving his 25-year sentence.sentence.