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The WorldCom scandal that saw CEO jailed for 25 years

Worldcom logo

Worldcom logo

Massive corporate frauds are not uncommon in the U.S.

However, two huge corporations collapsing after accounting scandals which eventually led to jail sentences for their bosses in the same 12 months is quite unusual.

The story of the Enron scandal of 2001 can be found here.

The shocking corruption led to long jail sentences for the telecoms company's top executives.

It was seen as a warning to other corporations to behave properly over their accounts.


Clearly, this warning was not heeded by bosses at the massive WorldCom corporation.

One of the biggest accounting scandals of all time

In 2002, it was found the company had inflated its assets by an incredible $11 billion.

This made it one of the biggest accounting scandals of all time.

The scandal was led by CEO Bernard Ebbers and was carried out between 1999 and 2002.

Ebbers was a larger-than-life figure whose trademark was a 10-gallon hat and cowboy boots.

At one stage he was worth $1.4 billion and was one of the richest men in America.

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He initially denied any involvement in the fraud, which had been designed to inflate the company's stock price.

The fraud was actually discovered by the company's own auditors, who discovered more than $3.8 billion of fraudulent balance sheet entries.

Following an investigation by the SEC, in June 2002 WorldCom publicly admitted it had overstated its income by over $3.8 billion over the previous five quarters.

The company was already in the process of a disastrous collapse which had seen it lose more than 94 percent of its value.

It had been facing another SEC investigation into its accounting that had started earlier in the year.

It was revealed it was $30 billion in debt and stated it would lay off 17,000 members of staff to try to avoid bankruptcy.


 The SEC filed civil fraud charges against WorldCom on June 26, claiming the firm had engaged in a concerted effort to manipulate its earnings in order to meet Wall Street targets and support its stock price.

Additionally, it claimed that the scheme had been "directed and approved by senior management", which suggested top executives were aware of it.

CEO "at the heart" of company's culture

Bernard Ebbers, Chairman and CEO of WorldCom

The SEC report said:

“The fraud was implemented by and under the direction of WorldCom’s Chief Financial Officer, Scott Sullivan. As business operations fell further and further short of financial targets announced by Ebbers, Sullivan directed the making of accounting entries that had no basis in generally accepted accounting principles to create the false appearance that WorldCom had achieved those targets.

“In doing so he was assisted by WorldCom’s Controller, David Myers, who in turn directed the making of entries he knew were not supported.”

The SEC heavily blamed Ebbers for the scandal, saying he was "at the heart" of the company's culture and exerted much of the pressure to keep the fraud going for as long as it did.

The report said the fraud was easy to pull off because “it was apparently considered acceptable for the General Accounting group to make entries of hundreds of millions of dollars with little or no documentation beyond a verbal or an e-mail directive from senior personnel”.

What happened?

A trial was held in 2005, where a jury found Ebbers guilty of fraud, conspiracy and filing false documents.

He was jailed for 25 years, but was released in December 2019 as a result of declining health.

He died in February 2020 aged 78.

Former CFO Scott Sullivan was also jailed for five years after pleading guilty and testifying against Ebbers.

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