WorldCom Collapses: Largest Bankruptcy in U.S. History

Eleven billion dollars in fraudulent accounting entries collapsed one of the largest telecommunications companies in the world and wiped out the retirement savings of thousands of employees who had been encouraged to invest their pensions in company stock. WorldCom filed for Chapter 11 bankruptcy protection with $107 billion in listed assets, surpassing Enron to become the largest corporate failure in American history at that time. WorldCom had grown from a small Mississippi long-distance reseller into a telecom giant through an aggressive acquisition strategy orchestrated by CEO Bernard Ebbers. The company completed over sixty acquisitions in the 1990s, including the $37 billion purchase of MCI Communications in 1998, creating a network that carried roughly half of all American internet traffic. Wall Street rewarded the growth with a stock price that peaked above $60 per share, making Ebbers a billionaire on paper. The fraud was straightforward in method if staggering in scale. Chief Financial Officer Scott Sullivan directed accountants to reclassify billions in ordinary operating expenses as capital expenditures, inflating profits and hiding the fact that the company was hemorrhaging cash. Internal auditor Cynthia Cooper discovered the discrepancies in June 2002 while investigating suspicious entries, and her team traced the manipulation through multiple quarters of financial statements. Sullivan pleaded guilty and cooperated with prosecutors. Ebbers maintained he knew nothing about the accounting fraud, but a jury convicted him of securities fraud and conspiracy in March 2005. He received a twenty-five year sentence. The collapse cost investors roughly $180 billion in market value and eliminated 20,000 jobs. WorldCom, along with Enron, directly triggered the passage of the Sarbanes-Oxley Act, which imposed the most extensive corporate governance reforms since the Securities Acts of the 1930s.