CONFIRMED
WorldCom and the $11 Billion Accounting Fraud
By the turn of the millennium, WorldCom was one of the largest telecommunications companies on earth — a sprawling empire assembled in barely a decade by a former milkman and basketball coach named Bernard Ebbers, who had bought up dozens of rivals to turn a tiny Mississippi long-distance reseller into a colossus that carried a huge share of the world's internet traffic and owned the famous MCI brand. Then the telecom bubble burst, revenues sagged, and the company faced an impossible problem: how to keep reporting the steady profits that Wall Street demanded when the underlying business was deteriorating. The answer, devised by its finance department, was breathtakingly simple and entirely fraudulent. Ordinary operating expenses — the fees WorldCom paid other networks to carry its calls — were quietly reclassified as long-term capital investments, the way a company might treat the cost of building a factory. With a few accounting entries, billions of dollars in costs vanished from the books and reappeared as assets, and the losses turned, on paper, into healthy profits. The deception eventually totalled some $11 billion, the largest accounting fraud yet seen. It was uncovered not by regulators or outside auditors but by WorldCom's own internal-audit team — a handful of people led by a vice-president named Cynthia Cooper, who pursued the anomalies in secret, often at night, against the resistance of the company's own chief financial officer. When they brought their findings to the board in June 2002, the company collapsed into the biggest bankruptcy in American history, its CEO was sent to prison for twenty-five years, and Congress passed a sweeping law that changed how every public company in the country keeps its books. This is the story of the fraud, the woman who exposed it, and the reckoning that followed.
