These Enron guys must feel like Mark McGwire. You have your moment in the sun, and pretty soon someone else wipes out your accomplishments.
WorldCom Inc. Says $3.7 Billion Illegally Documented as Capital Expenditures
Sounds familiar? All profits during this period are actually losses. Company likely to go bankrupt.
And who was auditing the company’s books while this fraud was going on? Don’t ask…
Oooh! More bad news for the telecoms! Can’t wait to share this with the folks at work on Thursday!
$3.8 Billion. And that’s just the 1st disclosure. Absolutely stunning.
Apparently, they claimed that certain routine expenses were actually capital expenditures, allowing them to underestimate their costs massively.
Unnamed SEC guy quoted in WSJ: “This is a matter that has none of the complexities of Enron.”
NYT: The size of Worldcom’s restatement surprised even hardened short-sellers — investors who profit when stocks fall and generally view corporate America with skepticism. “I’m kind of shaken by that,” said James Chanos, a short-seller who played a major role in unearthing Enron’s overstated profits and hidden debt. “I’m about as cynical as they come. It’s pretty amazing.”
NYT, context: “The problem, discovered during an internal audit, throws into doubt the survival of WorldCom and MCI, the long-distance company it acquired in 1998.”
Thank you Arthur Anderson, among others.
Anyone see “Frontline” tonight on PBS?
The episode tonight was a good indepth look into the source of the problems behind Enron and Arthur Anderson. The program strongly argued that the problems are systemic, not unique to Enron or Arthur Anderson, and the current head honcho appointed by Bush at the SEC doesn’t seem anxious to push for a lot of reforms.
The sad thing is that not a whole lot has changed in the business world because of this, and I fear that it may lead to widespread distrust of the stock market.
To be portrayred in a film on CNBC ** Dude, Where’s my $3.7 Billion?**
Unbelievable. Actually, it’s really not. Wonder what kind of stuff would be uncovered if every company’s records were reviewed with a fine-tooth comb?
This kind of shit will crash markets well before any outside factors like terrorism or war. Something drastic had better be done soon, or the whole house of cards will come tumbling down. If the “independent” auditors are in on the fraud, then no records are credible and no company’s reports will be believed.
I don’t know what the solution is. Maybe replace the auditors with government auditors that are not paid by the company and thus have no conflicts of interest.
**don’t ask ** is Worldcom’s auditor? :eek:
I’m just waiting for the resident right-wingers to pop in and tell us why having the government allow businesses to do whatever the damn hell they want without any regulation or oversight is a good thing.
The problem is certainly systemic–and has been known to be so for over twenty years. Two converging problems involve, what else?, money.
There is a general principal that no company should use the same external auditors for too many years in a row. Unfortunately, since the audit firm wants to get repeat business, they have a vested interest in seeing the books in the same light as management does. Blow the whistle, invoke FASB rules, or cite GAAP to point out that the books have problems, and next year the company will find someone else to review the books. Once management has found an auditing firm that “understands” their method of business, they are reluctant to swap out those auditors for a group that is not familiar with “their” practices.
At the same time, the auditing firms have continued to devour each other while going global–reducing the number of companies who are even available to perform those services. (There are a lot more auditing companies than the Big Five, of course, but few have the resources to inspect the entire set of books and practices for a large company. Twenty years ago the U.S. auditors were the Big Eight. The apparent reduction by three masks the fact that each of the eight were in the midst of acquiring any number of firms in the second tier, so those 8-now-5 actually represent a huge increase in the five’s hegemony. And, of course, they have begun to go international (although only the Price-Waterhouse merger with the Dutch firm seems to be reflected in the new name Pricewaterhouse-Cooper). The options for a company to find someone to handle the books for a massive enterprise have been shrinking each year.)
I’m not sure that bringing in the government will really help. WorldCom’s problems were discovered by the in-house auditors. (It would be onteresting to see whether the in-house guys found it last year but were ignored and had to wait for a new management team before they were heard.)
Most of the really serious frauds should have been visible to the investment community when looking at actual worth. The solution might take little more than FASB setting standards that require separate audits when the stock begins to look just too good to be believed. (I admit that it would tickle my fancy to see a lot of pot smokers turned loose from prison to make room for a bunch of execs to do some serious hard time rather than the few months of cottage confinement that they seem to incur these days.)
Isn’t obvious? Without gummit regulation and oversight, these guys could have gone on lying about profits for ages and we’d never have known about it, and then the stock market would never crash! It’d just go up and uppity up!
This, I don’t quite get. This accounting change, while huge and important, should not cause the company to go under in and of itself. All it will do is cause its past earnings values to change, which may in fact reduce the company’s tax bill, as it probably paid corporate income tax during a time when it was actually losing money. The $3.7B has already been spent, they just accounted for it incorrectly. When it comes to survival, cash is king, if they have cash to spend they will still be going, this change won’t affect their cash position negatively.
WorldCom has a whole host of other problems totally unrelated to this accounting issue, its stock price dropped from $15 to $1 this year before this thing was announced. It is those other problems that will kill the company, not this.
Point the first: Since when is government free of corruption and/or misinformation?
Point the second: How many massive corporations DIDN’T report false earnings? Generalizations are always false, buckaroo.
We don’t know. That’s the problem, isn’t it?
What a coincidence.
I was waiting for one of our resident partisan fanatics to pop in and make another stupid political hijack. And yours even had a straw man! Congrats!
:rolleyes:
Fenris
Fenris, isn’t calling another poster “stupid” running a little close to Pit territory?
Also, these businessmen are engaged in fraud. Stating losses as profits can be called nothing else. Defending the business community’s dirty laundry seems …questionable, at best.
:: blinks ::
:: looks around ::
:: notices smoke, flames, anguished screams of frying posters ::
Errrrr… Bosda… this is the Pit.
Oh. Yeah.
Sorry.
I’m worried about my job today. It’s leaving me more than a little upset & distracted.
No more Longevity pay, pay raise taken back, insurance costs doubled, & worse next year.
Or, maybe, I just get canned. 
I love working for the State of Tennessee. :rolleyes:
Andersen is claiming that they noticed irregularities and warned WorldCom about it, plus that they were misled. From the Chicago Tribune this morning:
"In a statement released Tuesday evening, Andersen contended that it had been misled by WorldCom’s Sullivan. The accounting firm said it had warned the WorldCom board earlier this year that it couldn’t trust the information it received for its 2001 audit.
" “The WorldCom CFO did not tell Andersen about the line-costs transfers nor did he consult with Andersen about the accounting treatment,” the statement said."
What causes many companies to file for bankruptcy these days is not that they have lost so much money that there is none left. Rather it is that they have so much debt that must constantly be refinanced that should the point ever come that bankers are unwilling to renew loans, they have no other choice but to file Chapter 11. (This is true of the recent Enron & K-Mart bankruptcies). A profitable company could be forced into bankruptcy, if lenders lost confidence, for whatever reason. In the case of WCOM, they were struggling to refinance their $30B debt load before these disclosures, and were thought to be a bankruptcy risk despite the assumption that they were profitable. The result of these disclosures is to make it even more unlikely that they will be able to get new financing. Which can drive them into bankruptcy.
There’s actually a snowballing effect of these bankruptcies - every new well-publicized bankruptcy makes lenders more and more cautious, and makes the credit rating agencies more aggressive in downgrading credit - these in turn make future bankruptcies more likely.
Why did I expect this thread to be about the social security “trust fund”?
Bosda
#1) This is the Pit. 
#2) …did you read my post? I didn’t defend the businessmen at all. They’re criminals. They should be prosecuted to the fullest extent of the law. If they did what they’re accused of, they should go to jail for a long, LONG time.
#3) I didn’t call anyone stupid. I called RJung (and his ilk on the left and right) a political fanatic, and I’ll stand by that, as he constantly spews out gibberish worthy Ann Coulter in lots of non-related threads. In this one, he just accused me, as “one of the Boards resident right-wingers” of believing that “the government allow businesses to do whatever the damn hell they want without any regulation or oversight is a good thing.”
I’d be willing to bet real cash money that NONE of the Boards resident “right-wingers” from me (moderate conservative) to December (hard line conservative) to TechChick (libertarian, IIRC) believes that “businesses should do whatever the hell they want without regulation or oversight”.
He’s being an asshole of the same sort that appear in abortion debates and claim that “left wingers want to force women to have abortions” and frankly I’m sick of his slander.
And what pisses me off the most is that RJung, when he’s not being a partisan asshole is a great poster with a wide range of topics he can discuss articulately and intelligently. Unfortunately, he seems to think that throwing idiotic one-liners, especially into unrelated threads, is…I dunno…effective? Useful? Not obnoxious?
Fenris