Đại án gian lận WorldCom 11 tỷ USD: Khi chi phí vận hành biến thành tài sản trên giấy

this video was brought to you by morning brew hi welcome to another episode of cold fusion william shakespeare once said no legacy is so rich as honesty 500 years later it appears that there are many who fail to understand this if honesty creates legacies then dishonesty destroys it the story of worldcom is about destroying a potential legacy with pure dishonesty worldcom was a u.s telecommunications company who provided phone and mobile services valued at over 100 billion dollars they were one of the largest companies in the world at the time so how on earth do you destroy a 100 billion company in a matter of months in this episode we'll take a look at the lies deceit and greed that made this feat possible the story began in 1983 when the breakup of atnt left a gaping hole in the long distance telephone market sensing an opportunity a group of men met at a coffee shop in jacksonville mississippi what would come out of this meeting would later become world com but was first incorporated as long-distance discount service for simplicity's sake we'll refer to the company long-distance discount service as worldcom in the early days one of the men in the meeting was bernie evans a stern man but hard worker and at this time little did he know that this small venture would later make him one of the highest paid executives in the united states there'll be much more in bernie later in 1995 long distance discount services would officially be renamed to worldcom the company's business model was simple worldcom didn't build landline cables or cellphone towers but would instead rent out this infrastructure from other companies this expense was known as line cost a point that will be vital to the understanding of the crux of the story so keep that in mind using this existing infrastructure worldcom would then provide cell phone and landline service to customers at a discounted rate the income from customers would hopefully be enough to offset any expenses the company's initial years were a bit rough till 1985 they made losses repeatedly as the company went into a debt of 1.5 million the owners decided to hand over the reins to bernie ebens making him both the president and ceo bernie was somewhat of a nobody before getting into the telecom business he was a former high school basketball coach who later cut his business teeth in the motel business bernie was well known to save every penny he could at any chance he got during that time he personally would clean all the motel rooms and wash the bedding instead of paying someone else to do it now the ceo of worldcom he was ruthless in his efforts to gain profits and started controlling costs immediately even to the point of stopping the company's free coffee policy despite maybe going a bit too far his efforts ensured a revenue rise within the first few months of him taking charge in 1986 revenue rose to 8.6 million and a year later grew to 18 million in spite of this competition in the market was tough with multiple companies providing similar services to grow more rapidly bernie started following a different strategy worldcom either acquired regional rivals or merged with other companies over the next 10 years bernie purchased 30 companies the company was officially named worldcom in 1995 and saw its sales reached nearly one billion dollars worldcom's largest merger took place in 1998 when it merged with mci communications a company two and a half times its size the 37 billion merger was finalized on september 15 1998. it was the largest company merger in history at the time of its announcement the company was renamed to mci worldcom after this worldcom ceo bernie ebbers became somewhat of a wall street renegade hero with his casual dress sense and salesman attitude by the year 2000 worldcom employed 88 000 people and owned 60 000 miles of telephone line not just in the us but around the world its revenues were to cross 40 billion dollars and the stock was flying bernie by now was receiving 27 million dollars in world com stock options to fund a lavish lifestyle he would take out loans from jpmorgan and secure them with worldcom stock according to cnbc a total of 408 million dollars was taken out to buy yachts than a yacht building company and not to mention the largest privately owned ranch on planet earth around this time worldcom was already in the process of completing a merger with sprint corporation this was supposed to be the biggest merger in history the 115 billion dollar deal was going to establish welcome as the world leader in the industry the deal however would be blocked due to anti-trust objections if this deal were to go forward consumers and businesses would pay the price because competition would be reduced in many important telecommunications markets the genesis of the worldcom fraud laying the failing of the sprint corporation acquisition this essentially exhausted all options of growth through mergers and acquisitions as mentioned in the beginning it was a strategy that the company had followed in the 90s to grow rapidly by the late 90s and 2000 the competition in the market became too intense and it became increasingly difficult to grow through the acquisition route too even though the internet was just getting started it seemed that the long distance telecommunication cash cow was drying up being in the infrastructure game wasn't as profitable as it once was the telecom industry was hit hard on wall street and worldcom stock went from 62. a share in 1999 to just 18 a share in the year 2000 despite worldcom being a massive player things were looking bad so they got desperate late in 1999 head accountant david myers brought in some financial earnings paperwork to chief financial officer scott sullivan sullivan looked at the papers and said there must be a mistake this couldn't be right as company profits were down the drain he asked david to go back and check again he did and the accounting department came back with the same number scott annoyed by now asked david to check another time he did and he came back with the same number this wasn't good worldcom was a public company and the earnings report was due soon scott sullivan being the cfo still insisted that the numbers must be wrong he directed dave myers to write down financial entries to make the numbers where he thought they should be it will all be fine in the end because the pair would figure out the problem by the next earnings release but when the next quarter came around david was instructed to repeat the same fraud again and in the next quarter he was asked to do the same thing the real pressure that the accounting department was put under was producing an entry that was based on the cfo's thought process of what he thought the number should be as opposed to what we knew the underlying answer was on realizing that just making fake entries wasn't going to be enough to make the margins look impressive cfo scott sullivan asked david to do something drastic he would take the costs of renting cell and landline infrastructure and book them down as assets this was to make worldcom appear financially healthy so what exactly did booking infrastructure renting costs as assets mean well an asset is something that a company pays for that will give a future economic benefit to understand the difference more let's look a little deeper assets are the resources available to a business whereas expenses are the resources consumed while running a business assets are reported for a specific date on the balance sheet while expenses are reported for an entire accounting period in an income statement writing down these line rental costs and infrastructure costs as assets that would generate revenue was illegal according to internal auditor glenn smith instead of expensing the cost of infrastructure rental at a monthly basis they were taking those costs and moving them to the balance sheet where they would be expensed over a 10 to 15 year period so this makes the cost appear lower per month this in turn would make income look much better when viewed on a short-term quarterly basis it wouldn't be long before worldcom internal auditors noticed something strange in the accounting books it would spell the end for one of the biggest american companies the fraud was unearthed by worldcom's vice president of internal audit cynthia cooper and also glenn smith cynthia's suspicion first arose when she came across the term prepaid capacity this was during a meeting with corporate finance director sanjeev sethi cynthia and glenn inquired about what the term meant but nobody seemed to know including sethi himself cynthia started pursuing the financial entries made under the term and in the company's accounting system she discovered three billion dollars of bogus entries all on the company's balance sheets she then questioned scott sullivan about it during a meeting sullivan stated that prepaid capacity was the cost of leasing fiber optic lines that were being underutilized the idea was that these purchases would yield income as the internet increased in popularity however cynthia was not convinced that these needed to be booked as assets instead of expenses remember this is during the dot-com you know boom and and we purchased all that anticipating that all of that capacity would be grabbed i mean it would be gone by the time we had bought it um and so when the dot-com bubble burst um those were what's called dark fiber so there was no traffic on those and so all of a sudden now we were locked into these three year leases where we're having to pay monthly on those but we've got no revenue to offset those and so as scott explained it so really what he was saying is that's really capacity we've pre-paid for that we anticipate at some time we'll have traffic for so it's really an asset of ours that we're going to go capitalize on the balance sheet so fantastic business case and if you explain that to somebody off the street they would say okay that makes sense oh it's convinced but gap says you can't do that right and so um cynthia and i left that and both just sort of looked at each other and said did we do we hear what we thought we just heard it wasn't easy for cynthia attempts were made to discourage her from pursuing the matter scott sullivan once called her on the phone while she was at a hair salon only to tell her not to discuss the matter with anderson orders pursuing it further she started interviewing the accountants who had made the entries only to discover that they didn't know why those entries were being made in the first place they were just doing as they were told by their seniors [Music] before we continue i just want to take a quick second to thank today's sponsor morningbrew so what do you usually do when you wake up in the morning probably pick up your phone and browse aimlessly but what if you could get up to date with all the latest news in just five minutes morningbrew is an online newsletter that's sent to your email inbox from monday to sunday and it does just that i was just reading about the inflation rising in the united states and how the skyrocketing price of lumber alone is causing home prices to jump by thirty six thousand dollars if you're interested in business finance or tech subscribe to morning brew is completely free and takes less than 15 seconds to subscribe click the link in the description below to get started as cynthia's investigation continued david myers would admit that the entries were made up but scott sullivan however defended the fraudulent entries the audit committee asked kpmg an external auditing firm to conduct their own review kpmg asked sullivan for an explanation he couldn't give a satisfying answer meanwhile bernie ebers who was now one of the highest paid executives in the country continued painting an optimistic picture for the stock market all the while he was busy building and protecting his own personal financial empire he continued to feed wall street expectations of double-digit growth is worldcom a financially sound solid surviving company absolutely we are free cashflow positive we announced that today as the telecommunications industry was shifting and the worldcom stock began to plunge the banks now wanted their money back from bernie remember he had secured loans with worldcom stock as collateral to avoid bernie selling the stock and spooking the market the worldcom board of directors gave him a 408 million dollar loan on april 29 2002 bernie was asked to resign due to his personal loan problems on june 25th 2002 the worldcom board makes the decision to go public with the investigation worldcom would fire scott sullivan and david myers would resign thank you for having me what do you want to say to the shareholder out there that's holding worldcom that just got the news that the sec has conducted an informal inquiry uh it's a very difficult thing to know what to say because i don't have enough definition to what they're asking it was not anticipated it's a very time consuming prospect because they ask a lot for a lot of information but the thing that i feel very confident in in my heart of hearts is that there are not issues that our shareholders ought to be concerned with with respect to the investigation by the sec i would be the first to tell them if i thought there were some issues worldcom announces that it's going to revise its financial statements for 2001 and the first quarter of 2002 it confessed that it had discovered 3.8 billion dollars in fraudulent entries as the investigation continued still more bad news came earnings from the years 1999 2000 and 2001 each had misclassified expenses as assets the total fraud would measure 11 billion dollars this led to one of the largest public company accounting frauds in history coming out into the open with the scandal just breaking one year after enron american business clearly had a problem to avoid bankruptcy worldcom immediately laid off 17 000 employees that was equivalent to one-fifth of the workforce this couldn't save it though worldcom along with all of its active us subsidiaries filed for chapter 11 bankruptcy with 107 billion dollars in assets it was the largest bankruptcy at the time however the company did re-brand itself as mci to salvage the blow to its reputation due to the fraudulent world com this new company was bought by verizon in 2006 for 8 billion though investors in worldcom were unfortunately hit the hardest in the scandal the new york state common retirement fund which is one of the largest public pension funds in the us lost over 300 million dollars and as worldcom stock fell off a cliff investors collectively lost 30 billion dollars on march 24 2004 charges were filed against the main actors in worldcom in the legal case the prosecution stated that bernie was motivated by greed his wealth was in world comstock and he had to keep that stock high at all costs bernie had financial targets and asked the cfo to meet these targets by any means necessary but others would argue that bernie knew nothing of the fraud the judge didn't agree though and by the next year he was arrested cfo scott sullivan and david myers were handcuffed in new york and paraded in front of tv cameras in 2005 david myers was sentenced to one year in jail while sullivan was given five years disgraced ceo bernie ebbins under whose leadership the fraud took place was charged with security fraud and conspiracy bernie pled not guilty but the charges were proven and he was given a sentence of 25 years he was released 12 years early in december of 2019 due to his poor health he would die shortly after his release in february last year the sec investigation concluded that quote ebbers was aware at a minimum that worldcom was meeting revenue expectations through financial gimmickry end quote in 2009 time magazine named him the 10th most corrupt ceo of all time the worldcom fraud is interesting because despite its severity it was pretty simply done by misclassifying and incorrectly reporting numbers it didn't involve worldcom's network its technology or its engineering most of the workforce at the company didn't even know that it was going on only those at the helm of the company's finances knew what was really happening even the board of directors were not aware that a fraud this massive was being conducted right under their noses as per the investigation by the sec the fraud continued this long because of the lack of courage to blow the whistle on senior officials it's amazing how such things can go unquestioned in such a large company because everyone expects that the person above them is doing the right thing today i wonder are there any future world comms out there so what do you guys think let me know in the comment section below or head over to the discord for discussion in the next episode we'll take a look at the arcagos scandal where 20 billion dollars was lost in two days if you want to get notified when that video comes out make sure you're subscribed to cold fusion alright so that's it my name is dagogo and you've been watching cold fusion and i'll catch you again soon for the next episode cheers guys have a good one cold fusion it's new thinking [Music] foreign [Music] you