WorldCom Fraud

Essay by haseeb5000 January 2010

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IntroductionWorldCom was put together by Founder Bernard Ebbers. It rapidly grew using mergers and acquisitions. The small group WorldCom acquired MCI which transformed it into a powerhouse controlling seventy percent of internet traffic. It was a widely held public company. It was a big spender as it paid a fortune to maintain its monopoly over the internet backbone. This created a lot of debt which caused many problems later on. WorldCom posted billions of dollars of profit despite the fact that other telecom companies were reporting losses. However three WorldCom employees eventually proved that the profits were not real as more shareholders would lose their money.

How did the solution by the participants create the undesirable?WorldCom achieved a successful position in the telecommunications industry by the successful completion of sixty five acquisitions. It spent almost sixty billion in the acquisition of many of these companies while accumulating a debt of forty one billion dollars.

The acquisition of MFS Communications and MCI Communications provided it with internet services and consumer telephone services. The management did not effectively deal with the challenge of integrating new and old organizations into a smoothly functioning business. Acquisition is a time consuming process which requires planning and attention if the process is to increase the value of the firm to both shareholders and stakeholders. The acquisition strategy was not properly carried out including the accounting of assets, debts, good will and other financially important factors. They had a need to meet unrealistic securities market expectations and had a culture which emphasized making numbers above everything (Lynne, 2003).

What was the intended outcome of the decision made by the group?WorldCom wanted to increase its profits so that it could write down in assets acquired while at the same time include the charge against earnings...