WorldComm's $3.8 Billion Accounting Error??!!!

[DavidCPA]

Pardon me, but at what dollar amount do all these errors become out and out fraud? If someone walked into a gas station and grabbed $50 bucks from the register and got caught they would probably spend time in jail. If you perpetrate a financial deception that causes investors to lose millions or billions of dollars, you just get fired. Does that make sense to anyone?

Enron, Tyco, Adelphia, Worldcomm...It's one thing for business to go bad and investors to lose money. Those circumstances arise and can't be helped sometimes. When executives knowingly and purposefully misrepresent the financial condition of their company and give investors the false impression of growth, financial stability, etc, they should be held accountable for their transgressions. It will probably never happen, but a few 5-10 year sentences in real prisons might make a few executives think twice before screwing with the books.

-DavidCPA

Worldcomm story link:

http://story.news.yahoo.com/news?tmpl=story&cid=580&ncid=749&e=1&u=/nm/20020626/bs_nm/telecoms_worldcom_dc_16

[Mark Asher]

I agree 100%. A guy can rob a liquor store of $100 and get 10 years or more. These execs at these companies should be getting long sentences in state pens.

Unfortunately, there is no real accountability. These people bilk others or the government out of millions and get fined and slapped on the wrist. Stuff like this makes me want to become a communist. :wink:

[Supertanker]

The other thing is that they continue to pound the market as a whole by destroying investor confidence. Nobody wants to buy any stock when we have one example after another of big companies cooking their books, and their alleged auditors happy to bless it. Losing money? No problem, just lie about it. Be sure to keep selling your stock and exercising options at regular intervals so you can cash out before the crash without drawing an insider trading charge.

[mtkafka]

Where does Martha Stewart fit in on this? She must be in on it somewhere! :lol:

PS Whens this recovery supposed to come? I've ended my last contract job earlier this year (IE im an unemployed loser), and jobs are sloooooooooooooooooooooooooooooooooooow to come by, unless i want to work minimum wage with unpaid overtime at Walmart!!!!!!

:twisted:

Recession my ass, one more terrorist attack ala 9/11 and we'll have a meltdown. I should listen to my dear old mom and go to nursing school. This tech stuff SUX!

etc

[AIM]

You guys are sooo right. An black individual can rob a gas station, steal $50 and spend 10 frekin years in jail. But yet, a 50+ year old white individual can alter or cook the books and get away with millions. And in the process ruin the lives of hard working families and what's their punishment? A freking slap on the wrist. This has to stop. :evil:

I hate to bring up the black and white issue but it's so evident in these cases. Blacks are always targeted when it comes to fighting crime, but yet we have rich white 50+ year old white "professionals" who steal millions and ruin families but yet what's their punishment? Nothing!!! Screw that. I always preach to my black buddies to screw the US government. Do what ever you can. Get as much money as you can from the government, and if a government worker says something: Claim racisim!!!! Because that's what it is.

Screw the government.... Get away with what ever you can, becuase the people who run big business don't care. They will get away with what ever they can. And our government does nothing about it.

And if I was one of the workers that lost everything when Enron collapsed, I would hunt down Mr. Lay and hang that f*cker by his balls.

:D :D

[Anonymous]

Like we didn't know this was going on. I suspect this is only the tip of the corporate scandal iceburg. The problem will never be fixed. Why? Money owns our political process for one - doubt it? For seconds, what would happen if all the corruption and insider games and callous, criminal, management and accounting practices were laid bare in a way the public could understand.

We're just getting a little taste of what would happen now. It doesn't benefit any of the powers that be to clean up big business, accounting or investment.

BTW, look what happened when our government belatedly recognised the effects of human behavior on global warming. That went nowhere fast. Cleaning up big business and investing will go nowhere faster.

[AIM]

mtkafka:

I think it's going to be awhile before we see a full scale recovery. And your right: If this country endures another terrorist attack, then you will definitely see some sort of melt down. And lets face it. We will see another terrorist attack! It's just a mater of when, where and how.

Also... Thank god I'm a special education major. Males in special ed. are in huge demand. And it's evident everytime I attend class. The girls outnumber us by a huge margin. For instance, my multicultural issues class had 35 students. And 32 of those students were female and the rest were males :shock:

My dad was telling me just recently that he was talking with a mother who's son was working in the IT field. He was making 100,000+ yearly. He had an expensive house, car etc... And he had a family to support. Then the IT industry came to a screeching halt and he lost his job. That must be terrfying!! Just horrible. Hopefully he's doing fine now.

[Enkidu]

Even us common folk have options, apparently:

NYT article (http://www.nytimes.com/2002/06/25/nyregion/25NYC.html)

[Mark Asher]

"We're just getting a little taste of what would happen now. It doesn't benefit any of the powers that be to clean up big business, accounting or investment."

It is self-regulating at a high level since these public companies all require investors.

[JeffL]

One way to look at it, however - there's a lot of bargains out there right now. A lot of companies whose value is very good (and very real) have had their stock drop due to the emotive nature of the market.

[Enkidu]

One way to look at it, however - there's a lot of bargains out there right now. A lot of companies whose value is very good (and very real) have had their stock drop due to the emotive nature of the market.

From your statement, Jeff, I'm guessing you are talking about companies whose business you understand, and that you have reason to believe are good values. For anyone that might misunderstand the thought, remember that just because a stock has dropped a lot does not mean it is a bargain.

[Mark Asher]

Yeah, you could make a counter argument that a lot of stocks are still overpriced due to riding a bull market for years.

If I was an investor, I'd be wary now. If I managed mutual funds, I'd be even more wary.

What's Nortel down to these days? How much value has it lost over the last couple of years? It's staggering, isn't it?

[Anonymous]

"We're just getting a little taste of what would happen now. It doesn't benefit any of the powers that be to clean up big business, accounting or investment."

It is self-regulating at a high level since these public companies all require investors.

I dunno. I just don't see it. I think most companies will just PR and lay low rather than actually see to any reforms. Cleaning up your act all but means admitting you made mistakes that need cleaning. One whiff of weakness in our stock driven markets will kill you.

It's almost as if the actual product, company or service barely matters anymore. The key is finding accounting and legal loopholes to manipulate the system while filling your own pockets up as much as you can - and laughing about it as you cheat your buddies at golf.

Yeah, I'm no expert but my cynicism is definitely growing and there are folks in journalism and academia who are much, much, better informed than myself that contribute to the viewpoint I have.

[Mark Asher]

What I meant by self-regulating is that the market will punish companies that don't make money. They can cook the books for awhile, but sooner or later the market's going to see that they're not making money and abandon them.

That doesn't solve the problem with crooked accounting and execs making out like bandits while stockholders get screwed, but when stockholders get screwed there's going to be more calls for better accountability. That's happening right now.

The kind of corporate irresponsibility that worries me more is how the drive to increase profits can result in funding sweatshops overseas, excessive damage to the environment, etc. When a company is making money, people tend to look the other way. We have labor laws here, but we reward shoe companies for bypassing them and going overseas where the labor laws are much more lenient (and thus more abusive of workers). We have laws against clear-cutting forests, but we reward companies engaged in that in Brazil. We have laws against dumping pollution, but we reward companies that are trucking it and dumping it south of the border in Mexico.

[Anonymous]

<snip good stuff>

I'm with you on that too. But where's the impetus for change? The public doesn't care. Investors don't care. Who cares but a bunch of guys in turtle costumes breaking windows in Seattle?

I'm not sure where I fit in the political spectrum these days as no ideology as a whole really seems trustworthy or rational.

[Lando]

multicultural issues class

Now THAT is just damn funny.

Is that what they teach in school these days? No wonder we have problems.

[noun]

I'll believe the stock market has come back to its senses when Amazon is finally revealed to be the junk bond it is. Their were pioneers in the whole e-commerce thing, but all they are now is a gigantic Ponzi's scheme waiting to implode.

[William Harms]

PBS's Frontline series addressed this topic this week; you can probably catch the rerun sometime.

Basically it boils down to the fact that Congress passed tort reform that made it harder for average consumers to sue companies for providing inaccurate information (such as cooking the books) and that companies are not required to include stock grants as an expense. The latter is especially important because CEOs are getting massive stock grants and the temptation is there to boost the stock price--through whatever means--so they can cash out big time.

The current head of the SEC favors "self-regulation" (which will never work), so it's unlikely that anything of substance will happen in terms of reform. Besides, I think the public is overloaded with negativity; after awhile it cancels itself out. Most people can't be bothered to get off the couch, let alone express outrage over shady accounting practices.

[Bub, Andrew]

Besides, I think the public is overloaded with negativity; after awhile it cancels itself out. Most people can't be bothered to get off the couch, let alone express outrage over shady accounting practices.

Yeah, Martha is the juicier story even though what she's accused of is nothing compared to Ken Lay and Tyco et al. I think people are more outraged or frustrated that Ken Lay, for example, hasn't been indicted yet. People don't realize how slowly the wheels of justice turn and how effective a million dollar lawyer can be at slowing those wheels down.

But John Stewart addressed this point on the Daily Show. He explained exactly what WorldCom did and noted that it's hard to care because it's BORING. He told the audience to think of them as fudiciary immoral blow jobs.

[Desslock]

>What's Nortel down to these days? How much value has it lost over the last couple of years? It's staggering, isn't it?

Something like 300 billion. And they'll take another bath over Worldcom, since it's a major Nortel customer.

[Brian Rucker]

But John Stewart addressed this point on the Daily Show. He explained exactly what WorldCom did and noted that it's hard to care because it's BORING. He told the audience to think of them as fudiciary immoral blow jobs.

The Daily Show, more than anything in the mass media right now, gives me hope that at least one person has a clue. Stewart and his crew are simply spot-on. You have to wonder if TV journalists and news networks have any idea exactly how, justly, skewered they are every single night of the week? The cable networks, all of them, are just pathetic - it's all about audience and ratings not actually taking chances to find real stories. That could be bad for advertising or, as Stewart points out, bore or confuse the poor audience. Remote controls killed Cronkite! (Even if he's not dead yet).

My favorite skit was one that's still on the Daily Show website featuring "Sweet, sweet Iraqi crude" and discussing oil as a drug.

[DavidCPA]

http://story.news.yahoo.com/news?tmpl=story&ncid=530&e=1&cid=530&u=/ap/20020627/ap_on_bi_ge/worldcom_investigation_20

Maybe my memory is bad but why didn't he say that Enron execs deserve jail too?

-DavidCPA

[Ben Sones]

I have to admit, the Daily Show is the only TV news that I watch any more. I don't know if that's a rabid endorsement for the Daily Show, or a sad, sad statement on the state of network news. Probably both. When a half-hour comedy news program offers more insight on the state of the world than CNN, something is amiss.

The news specials are even worse. Maybe I'm just remembering through rosey glasses, but didn't shows such as 60 Minutes used to be worth watching? They play like televised tabloids these days.

[Bub, Andrew]

The Daily Show's Head Writer used to be the EIC for The Onion. That explains a lot, doesn't it? And John Stewart apparently contributes heavily, as he should since he's the guy who more often than not has to say the jokes. According to a New Yorker profile of Stewart they have to reign the Onion guy in all the time because he gets so angry at the news. He starts writing really funny but also really offensive jokes they can't air.
The profile ran in the March issue of the New Yorker, it was pretty fascinating stuff.

Plus, I love Steve Carrell.

[DavidCPA]

To give a couple of extra details on the fraud, WorldCom reported $7.9 billion in capital expenditures in 2001. $3.06 billion (39% of the total) should have been classified as expense. According to the article I read they were recording normal telephone line maintenance as a capital expenditure. Not only does this fraud mispresent the income statement by removing expenses it also sends the signal that WorldCom is expanding by adding or upgrading it's physical lines.

I still don't understand the thought process the CFO would have gone through to make this sort of decision.

Edit: The article was by Rob Urban of Bloomberg News.

-DavidCPA

[Brad Grenz]

I have to admit, the Daily Show is the only TV news that I watch any more. I don't know if that's a rabid endorsement for the Daily Show, or a sad, sad statement on the state of network news. Probably both.

Absolutely, it's both. The Daily Show has always been great. I was really worried when Kilborn left, but luckily for us the show got better under Stewart. My favorite bit is Even Steven. Stephen Colbert is a friggin genius. He was great on Stangers with Candy too. He had actually left the Daily Show just prior to 9/11, but he came back which was far more comforting to me than seeing any of the "real" news men. The funny thing is that the Daily Show is far more real than anything else that passes for journalism these days. They used to run a promo calling themselves the most important show ever as a joke. As far as I'm concerned it's true. At the very least I probably would've gone on a shooting spree a long time ago without them.

Brad Grenz

[Supertanker]

I still don't understand the thought process the CFO would have gone through to make this sort of decision.

The situation is explained pretty well in this NYT article (if you are registered): http://www.nytimes.com/2002/06/28/business/28TELE.html

It appears the CFO wanted to make sure WorldCom hit its projected profit numbers, since he only moved enough of the costs around to meet that goal. In another article, they said his defense was that in the old regulated days, it was acceptable to treat some annual expenses (line maintenace, etc.) as a capital cost. That does not meet GAAP though, so obviously something fishy was going on. Andersen claims there was no way they could have known, which seems unlikely given the simplicity and size of the fraud.

They should have just done like AOL did for many years, and issue stock to generate operating revenue.