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The Almighty Buck

WorldCom CFO Accused of $3.6 Billion Fraud 571

winter was among the first to point out that allegations of fraud have led to a massive stock drop at WorldCom. A flurry of stories have popped up on Yahoo!, none of them good news for WorldCom. CFO Scott Sullivan is accused of misstating the company's revenues, specifically its earnings before interest, taxation, depreciation and amortization (aka EBITDA), and the stock has slid more than 50% (as of this writing) in after-hours trading.
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WorldCom CFO Accused of $3.6 Billion Fraud

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  • jeez (Score:5, Insightful)

    by tiwason ( 187819 ) on Tuesday June 25, 2002 @07:46PM (#3766174)
    I love how they pin it on one guy.... like it was all his fault. but we fired him now...

    • Re:jeez (Score:5, Interesting)

      by dohmp ( 13306 ) <dohmp@@@yahoo...com> on Tuesday June 25, 2002 @08:16PM (#3766262)
      to add to this:

      it is absolutely disingenious to hear executives say "we're shocked, shocked and appalled!" when you know DAMN WELL that accounting practices are rarely able to be hidden in the dark when they're THAT excessive... (especially when it comes to capitalization in my experience)

      former employers of mine literally used to reprimand us when we didn't capitalize all our labor (which was clearly illegal in those particular cases, and everyone knew it well, but they'd actually try to defend the actions by suggesting that the accounting laws are being CHANGED in our favor in the near future).

      there's never "one person" at fault for these situations, and whistleblowing is a tricky option....

      either way, i enjoy seeing them (the unsavory executives) personally fail, but i hate the wake they leave in their rapid descent.

      cheers.

      Peter
      • Define "fail" (Score:5, Insightful)

        by BeBoxer ( 14448 ) on Tuesday June 25, 2002 @11:03PM (#3766876)
        i enjoy seeing them (the unsavory executives) personally fail

        Except that the exec's rarely if ever "fail" by any common sense standard. They almost never end up in jail (where they belong), and invariably walk away with more money then you, me, and a hundred of our best friends will make in a lifetime. If failure is a bum resume and ten million bucks in the bank, I'll take that over a nice resume and a mortgage any day.
    • Whew. Good to hear that with the firing, the problems are gone.

      I'm also glad things like this only happen to American companies. The European economy is apparently immune to these sorts of scandals, which is a breath of fresh air.

    • The problem with corporations is that they are legal entities. For example, if you sue Microsoft, you're suing "Microsoft Corporation" itself, not Bill G. or Steve Ballmer or it's legal department. As such, a corporation can be found guilty of crimes. The question becomes, how do we punish a corporate entity that's already in debt for several billion dollars. Wrap your head around that [fsu.edu]. What we do now is try to pin it on someone inside the corporation. In our society, you go as far up the corporate ladder as you can, until you reach an unlucky scapegoat.

      Well, that was a nice little rant.
    • Re:jeez (Score:3, Informative)

      by Rogerborg ( 306625 )
      • I love how they pin it on one guy.... like it was all his fault. but we fired him now...

      It could be worse. I work at a R&D operation that supplies Worldcom. We were told last week that $50M of expected business had fallen through, and that lost us a bunch of conditional investment. And gee, now Worldcom discloses that it has $3.7B less than it thought. Spot the connection, and bear in mind that Worldcom will have put damage limitation and cost control in place before going public with this.

      So now we've got an enforced company wide pay cut, compulsory redundancies with statuatory minumum compensation and no employee consulatation, and an off the record statement from HR that our contracts aren't worth the paper they're written on. The worst bit? Our CFO - the guy who booked $50M of potential sales plus conditional investment as a done deal - retains his job. Why? Because now, more than ever, we apparently need steady hands at the tiller. It's very brave and noble for the captain to stay at the helm and go down with his ship - but not if he's already asset stripped the lifeboats and thrown the entire crew overboard to gain bouyancy.

      Sorry, gripe mode off. I just wanted to remind everyone that when you see headlines like these, it's not just the 17,000 poor shmoes at Worldcom that are getting stiffed. That $3.7B - and the lost investment and sales that it will cause - are going to be clawed back by cancelling orders or withholding money from suppliers, many of whom have already spent or invested on the basis that, hey, if you can't trust Worldcom to pay up, who can you trust. The hurt just spreads and spreads.

      God damn but this is a bad time to be in telecomms.

      • Telecom meltdown (Score:3, Informative)

        by revscat ( 35618 )

        Not that you need much convincing, but this [nytimes.com] article over at the NYTimes is rather interesting, considering recent events. It talks about the extremely rough times that telecom companies are going through, and leaves open the possibility of a complete meltdown of that market. Scary, because as you said this affects everyone in the tech industry.

  • Oh goodie (Score:2, Insightful)

    by sunspot42 ( 455706 )
    Let's put all of our Social Security money into the stock market. The private sector could make much better use of that money than the nasty old government . . .

    Better yet, let's just go to Reno and gamble it all away. Yeah!
    • Re:Oh goodie (Score:5, Insightful)

      by bnenning ( 58349 ) on Tuesday June 25, 2002 @08:46PM (#3766367)
      So many misconceptions in so few words. Where to begin...
      • You have no money "invested" in Social Security. There is no account with your name on it (nor is there any "trust fund"), and you have no legal claim to any benefits whatsoever.
      • Retirement investing is for the long term; the ups and downs of the stock market over a period of days or months are irrelevant. Yes, stocks are down quite a bit compared to a few years ago, but anyone who has been investing consistently for the last 40 years is still doing very well.
      • You don't need to invest in stocks at all to get a better return than what Social Security promises (and is under no obligation to deliver). Workers starting out today would do better with a passbook savings account. As with any pyramid scheme, the founders and early participants come out ahead, and everyone following them gets shafted.


      Every plan for reforming Social Security that I've seen has been voluntary. If you don't think you have the ability to manage your own money, you would be free to continue to fling it into the current Ponzi scheme. But those of us who do understand basic concepts of math and economics shouldn't have to suffer because of your fears.

      • You have no money "invested" in Social Security. There is no account with your name on it (nor is there any "trust fund"), and you have no legal claim to any benefits whatsoever

        This is untrue, there is an actual filling cabinet that holds the actual US Treasury bonds that are owned by the trust fund.

        The accounting records kept by Social Security are no less real than those held by your bank. The only differences between Social Security and a real pension fund is that Social Security is only allowed to invest in the investment that gives the lowest return and the pension fund owners regularly borrow against the reserve.

        That does not matter a whole lot because however 'insolvent' the trust fund might appear to become the US govt has plenty of discretionary spending to cut and can increase taxes if required.

        The point of social security is not that it should be your only pension plan, it is simply a minimum pension plan that everyone is required to take out to make sure that the government does not end up with a large population of geriatric electors with no income who would inevitably vote themselves state aid.

        • ss == state aid.....
        • This is untrue, there is an actual filling cabinet that holds the actual US Treasury bonds that are owned by the trust fund.

          Um, no. SS is simply a money *tranfer* plan. Take money from the young working bunch and transfer it to the old not working bunch. This has only worked because there have been more young working people than old people. The problem that is coming is that all of the babyboomers are going to be reaching retirement age soon and with the expected life expectancy going higher and higher there will not be enough young working people to support them all.
        • "This is untrue"

          Really? Can you show me the document that says you'll get anything back from the money you and your employer "invested" on your behalf in FICA?

          You can't.

          Congress might fold it (unlikely), change the eligibility requirements (likely), change the benefits (certain). Anything could change, and specifically, you aren't guaranteed anything other than you have to pay

          So FICA has an IOU from the treasury, but your name isn't involved anywhere. So YOU aren't owed anything.

          But you OWE 15.4% on all your wages to this mythical retirement plan. Fortunately, your employer is NICE enough to pick up 1/2 the tab.
      • Re:Oh goodie (Score:3, Insightful)

        by BeBoxer ( 14448 )
        If you don't think you have the ability to manage your own money, you would be free to continue to fling it into the current Ponzi scheme

        I'm confused. Is Social Security a Ponzi scheme? Or is the stock market? While SS in many ways resembles a Ponzi scheme, it's been a remarkably sustainable one. On the other hand, hindsight has revealed that many Internet stocks not only resembled Ponzi schemes, but collapsed in short term screwing all but the early investors exactly as a Ponzi scheme should. If it walks like a duck, and quacks like a duck, it's a duck. If it promises huge returns, relies on an unsustainable number of new investors, and screws everyone but the top level, it's a Ponzi scheme. Good old fashioned Blue Chip stocks are fairly reliable. But a lot of the crap that the stock market has gotten away with over the last five years is just plain fraud.
      • Let's put all of our Social Security money into the stock market. The private sector could make much better use of that money than the nasty old government . . .

      Over any long period, the stock market outperforms cash, which is the option you have with not investing Social Security money.

      If you invest, there is risk, yes, but there is also reward.

      We pretty much know what happens if you just run a Social Security Trust Fund. It's just a big pyramid scheme where the future payees have to pay out all the benefits. It depends on either enslaving the young to pay for pensions or decreasing benefits to sub-poverty levels. There's really no other option.

      Besides, it's just a huge strawman anyway. I've heard no proposal that puts all the Social Security money into the market, just sensible plans to move a percentage of the money currently going into the rathole Trust Fund into markets, where it can stimulate the economy.

    • Yeah, much better to keep all the retirement money in the hands of one entity so that when it fails, *everyone* is hosed.

      -jcr
    • What I wouldn't do to be able to take the money deducted from my paycheck in the name of Social Security and 1) put it in a savings account, 2) invest it, or 3) a combination thereof. I would clearly be better off. Instead, my government is getting off on me all of my natural working life.

      At some point in the not too distance future, I will be at odds with my government and its eighty-year grandfather clause. Maybe I'll try and take a case before the Supreme Court and tear it all down.

      Until then, there is one rule we all can live by. Do not trust any one entity with all of your cash, resources, etc. Not the federal government. Not a multinational. Not even your local bank.

  • ...did Martha Stewart sell her stock in time?

  • by smoondog ( 85133 ) on Tuesday June 25, 2002 @07:49PM (#3766188)
    When are our corporate leaders going to put away greed in favor of fiscal responsibility? They are overpaid, over-valued and over-hyped. I can't believe that some execs make and own large percentages of the entire company, causing the stock price of the silent masses to be controlled by the actions of these idiot few. These guys even take loans for themselves ($366 million for ex-worldcom ceo) [216.239.51.100]!

    -Sean
    • When are our corporate leaders going to put away greed in favor of fiscal responsibility?

      You ask a question

      They are overpaid, over-valued and over-hyped.

      and then you answer it. Clearly, why stop when they're doing so well?

  • by RollingThunder ( 88952 ) on Tuesday June 25, 2002 @07:50PM (#3766190)
    one slap on the wrist, and a fine of whatever pocket change you happen to have on you.
    • by 0WaitState ( 231806 ) on Tuesday June 25, 2002 @08:43PM (#3766349)
      one slap on the wrist, and a fine of whatever pocket change you happen to have on you

      The scary thing is how accurate this comment is--we've reached a state where if you're a major company insider, your best path financially is to loot the company of 20-100 million, and then spend a fraction of it on your legal defense/settlement.

      Until crooked CEO/CFO/CoBs start doing major jail time, this is going to keep happening. And with a wholly owned Shrub in the White House and soft-money campaign contributions owning Congress, real securities reform with meaningful deterrent provisions just aren't very likely.

      What's even more scary is that even with all the accounting scandals and insider rip-offs, the US stocks are still considered one of world's most legitimate. Me? I'm going to invest my money in beer--at least the empties will be worth something.
    • by Jeppe Salvesen ( 101622 ) on Wednesday June 26, 2002 @04:06AM (#3767776)
      This is not going to stop until you clean up your justice system. I mean both in your courts and in your heads.

      First off, let go off the revenge idea. The punishment should be punitive, in terms of making committing crimes a bad idea, not getting even. You never get even. Seeing the guy that raped your daughter being fried in the chair, will not bring your daughter back. For those people, I wish for them to live long lives in prison, tormented by regrets - alternatively with some hope if they have been wrongfully been found guilty.

      Second, make it harder to sue someone. When you have people rushing into busses when they crash, to emerge later, holding their necks - well, you just have a big problem. Tort law has its perks, but you've let it go way too far.

      Third, reduce the ability to compete by lawsuit. My impression is that a lot of companies use the court system for competititve purposes, suing their competitors as part of a larger strategy.

      Fourth, put some regulations on severance packages and stock options. Those only encourage bad behavior. It is extremely dangerous to introduce badly thought out incentives anywhere, and giving a CEO an unconditional severance package is just folly. We'll see more of this, but I hope you'll learn some day.

      I'm not an American, btw, but I studied there for three and a half years - 97 to 00. I'm actually Norwegian. Currently, the weak dollar looks to reduce the oil income that our social structures depend on substantially. So, your lack of control of your giant corporations is not only hurting yoruselves, but your allies as well. Not a good thing in these trying times..
  • by D_Nebuchadnezzar ( 569870 ) on Tuesday June 25, 2002 @07:52PM (#3766196)
    This is just another example of the real trouble American companies are in. On PBS the other night, Frontline [pbs.org] divoted a whole hour to the extreme mess than the accounting/stock/ceo situation is in... Basically, Stock options aren't reported. CEO gets huge stock options. CEO lies about company's value. Accountants lie for value too, as they have consulting contracts with the company. Truth is found out, company's stock plunges, accounting company shreds paper... pays off politicians to keep things status-quoe... cycle starts over again. Very scarry.
    • but it lacked in the execution. In all honesty the Frontline special on the fall of the dotcoms [pbs.org], broadcast originally 24 January of this year, explained certain aspects of the current malaise much more dramatically -- and sounded like less of a history lesson to boot.

      The companion website linked above has an extensive set of links and interviews. Highly recommended.
    • by Anonymous Coward
      VA LINUX was used as an example in the report, because the VALINUX IPO was a huge rip-off. What did CMDRTACO know and when did he know it??!

    • Tuesday June 18, 8:00 am Eastern Time
      Press Release
      SOURCE: OSDN

      Forbes.com Provides Readers With Newsfeed From Slashdot [yahoo.com]

      Slashdot-Branded Area Provides Forbes.com Readers With Cutting-Edge, High Tech Content
      ACTON, MA--(INTERNET WIRE)--Jun 18, 2002 -- OSDN and Forbes.com today announced that Forbes.com will feature a newsfeed from Slashdot® -- one of OSDN's premier web sites -- providing senior-level business readers with access to cutting-edge, high-tech content online.

      Forbes.com's recent web site redesign prominently features a Slashdot-branded area with a newsfeed from the site. Slashdot is one of the largest tech sites on the web, with coverage ranging from the ultra-technical to the ultra-controversial. Slashdot joins sites such as Reuters, which provides widespread news, and The McKinsey Group, which provides research updates, to Forbes.com readers.

      "We were thrilled when Forbes.com expressed interest in a newsfeed from Slashdot because it will direct even more senior-level business professionals to the Slashdot site," said Richard French, general manager, OSDN. "This move will help to position OSDN to business readers as the place for high tech content, and will help OSDN continue to gain credibility in broader business markets."

      "We pursued Slashdot because we think it will add to Forbes.com's Technology channel by providing the caliber of high-tech news our senior executive readership wants," said Paul Maidment, editor, Forbes.com. "Slashdot is a welcome addition to our site."


      OK, now I'm scared...
  • by __aadhrk6380 ( 585073 ) on Tuesday June 25, 2002 @08:03PM (#3766225) Journal
    After watching Microage, Inacom, Enron, and countless other companies bite the dust, forgive me for being a bit selfish, but just how is this going to affect me? Yes, I remember the Inacom 1-800-You're-Fired debacle, and Microage's spectacular crash-and-burn as well. But in an already depressed tech economy, how many competitors will I have for an ever shrinking pool of jobs? My personal thoughts? Some very bright, tech-savvy people are out on their butts because a bunch of people in suits (and dresses, I am an equal meanie) were pegging about 0.0 on the clue-meter, and 10.0 on the greed-meter. I almost wonder if old-style MBA's and business types don't know how to push a high tech company forward while the dot.com group (mostly techy) didn't have the knowledge of the old school MBA's to run a company profitably. Wow, what a mess! Joseph Heller, eat your heart out!
    • For the past year I've been competing against 100-200 people for web design/info architecture jobs. I'm not exactly unqualified (pro since 96) but there's so many people and so few jobs.

      A recent PT evening design job paying $10-$15/hr had over 100 applicants.

      What do I do? It's the only skilled trade i know.
  • by night_flyer ( 453866 ) on Tuesday June 25, 2002 @08:03PM (#3766227) Homepage
    the guy that couldnt manage the massive empire he built, seems buying MCI was too much for him. I saw the stock slide from 60.00 to 14.00 before I left the company.

    Now Bernie will recieve 1 million a year in retirement. He will still have to repay the 400 million dollar loan he took out against the company... the board said he can repay it in stock....
    • You and me both, brother. I got out in February, and have a nice stable .edu job now.

      I was hired into ANS just as they were being Borged by MCI Worldcom. In the three years I worked in my building here in Ann Arbor, I worked for ANS, then UUNet - a Worldcom company, and then just plain Worldcom. With every name change, things kept getting worse, until I was worrying every day if I was going to go into work and find the side doors locked, and extra security at front door, like what happened on the Ash Wednesday when 14,000 people got fired nationwide at once.

      Sinking ships, anyone? [cafepress.com]
      -----
      Apple hardware still too expensive for you? How about a raffle ticket? [macraffle.com]
  • What about the hundred other accounts who did the actual bookkeeping and knew what was going on.

  • I've seen the company I work for trail down from over $20.00 a share all the way down to its current standing of $4.09. While I have faith that we aren't going to go bankrupt it does make me a bit easy when I see the troubles alot of other telecos are going through.
  • by night_flyer ( 453866 ) on Tuesday June 25, 2002 @08:06PM (#3766237) Homepage
    when I checked stocks were .20 a share, down 78%
    [yahoo.com]
    Yahoo Real-time Mkt
  • by WIAKywbfatw ( 307557 ) on Tuesday June 25, 2002 @08:06PM (#3766238) Journal
    If the reports about WorldCom are accurate then this is Enron all over again.

    In today's economic environment, accountancy practices are under closer scrutiny than ever before - and not before time. The only reason why Enron were able to get away with fraud and misrepresentation on such a grand scale was because everyone - the accountants, the analysts, and the investors - had their eyes closed to the obvious.

    Hindsight is 20/20, but even an idiot could tell you that, in an era where companies lie about just about everything, anything said by a CEO, issued by a press officer or printed in an annual report should be taken with a very large pinch of salt.

    Post-Enron, the markets are very jittery, and many investors have lost faith entirely - if a seemingly sure-fire, blue-chip company like Enron can fall then anyone can. Freefall is an exaggeration, but compare how quickly the markets bounced back from September 11 to how badly they've reacted to the ongoing crisis of faith sparked off by the Enron/Andersen fiasco.

    Witness how even the slightest sign of weakness is being jumped upon by analysts. Profits warnings and other negative indicators that would have shrugged off just twelve months ago are now being forensically examined by paranoid dealers anxious not to get caught out a second time.

    One things for sure: there are a few more timebombs ticking away out there. Enron may have been just the first of many.

    The bottom line is this: it's going to be some time until the markets recover and it's going to be longer still until we see the kind of market gains that we experienced in the 80's and 90's.
    • Maybe not (Score:2, Informative)

      by Sandlund ( 226344 )
      Their accountant was...Arthur Andersen LLP. As Gomer Pile would say: surprise, surprise.

      If it had been one of the other "Final Four" accouting firms, maybe it would have been the beginning of something huge. Expect a "what do you expect?" while they move on to the next scandal.


    • > One things for sure: there are a few more timebombs ticking away out there. Enron may have been just the first of many.

      After following the news, watching the PBS special, and reflecting on human nature, I've come to the conclusion that this is the norm rather than the exception.

      Our whole economy (and indeed, most of our government) is focused on keeping share prices high at all costs. For companies, this means optimize the quarterly report at all costs. (Or even more frequently than quarterly, for an increasing number of companies.) So they are re-wiring themselves to be all marketing on the front side and all creative bookkeeping on the back, with a big gaping hole in the middle where the genuine power of the economy lies^w used to lie.

      This does not bode well for the long-term health of our economy. The metaphor "house of cards" comes to mind.

    • The bottom line is this: it's going to be some time until the markets recover and it's going to be longer still until we see the kind of market gains that we experienced in the 80's and 90's.

      Or maybe we'll find out that there weren't any big market gains in the 90s.

    • ...if a seemingly sure-fire, blue-chip company like Enron...

      Technically speaking, Enron is not a Blue Chip company. That term is reserved for the thirty companies which make up the Dow Jones Industrial Average.

      Pedantic, I know, but it's what I do best.

    • No wonder the market is jittery. They know too well how over-the-edge the past 5 years have been.

      So, did we ever learn anything from the 80s? 20s? Can you all say no? The stock markets are all feeling, with a tad of analysis thrown in for good measure. There is little rationality there, just all poor leadership. That is part of the reason why the dot-com was allowed to happen, and that is why they are overreacting when one large company has fucked up (unless I am right in paragraph one).

      The stock markets are all mass hysteria. We should be very worried that they have such impact on our lives.
    • > everyone - the accountants, the analysts, and the
      >investors - had their eyes closed to the obvious.

      ...unless you read NANOG-l, where the network engineers, architects and hackerish observers of the network industry have been saying for (literally) years "Bernie Ebbers is a crook, what a shame UU will probably go down in the wreck when it finally comes."

      By all accounts (and from some personal experience as a customer) UUNet have a pretty solid, reliable, professionally run network. I just hope the receivers realise a lit network complete with engineering teams is worth a lot, lot more than a dark network with no engineers.

  • by CanadaDave ( 544515 ) on Tuesday June 25, 2002 @08:07PM (#3766242) Homepage
    I heard on the radio just last week...that there was a guy who worked at a New York investment research firm (they emphasized that he was NOT a broker/analyst), who said in a newspaper column (I think in the NYTimes) that 25 of the 29 largest telecom/photonics companies in the US were at risk of going bankrupt in the next coming months. He compared it to the early 20th century when there were over 50 car manufacturers in the US, and then after a major car industry meltdown, there were 5 companies which emerged from the dust.

    This guy predicted that 25 of the largest telco companies will go down (and this 25 included Nortel, but that's the only name I remember), and NO ONE will rescue them at all, because the only way the other 4-5 companies will have a chance of a healthy life afterwards is if they let the companies go bankrupt (R.I.P.) while the 4-5 remaining companies will buy them up in a fire-sale.

    Just wondering if anyone else heard about this prediction...it was just last week I think. I'd also like to get my hands on the article. If anyone knows anything about this, please let me know. I did a bit of Google searching and checked the NYTimes, but didn't find anything. Bad keywords probably.

    • by rudy_wayne ( 414635 ) on Tuesday June 25, 2002 @08:38PM (#3766326)
      The comparison to the auto industry doesn't work. Back when there were 50 auto companies
      there were a lot fewer people in the US and a lot less demand for cars. A shake-out was inevitable.
      There would be no need for any of those 25 telecom companies to go broke if they were run properly -- there's plenty of customers and plenty of demand.

      What we are seeing with WorldCom, Enron, Tyco, ect. is a recurring pattern. Companies with lots of customers and lots of revenue -- who are going broke. More and more companies are becoming the playthings of the wealthy elite and Wall Street -- existing not to produce goods and services but existing only to enrich a handful of people.

      example -- @Home had over 4 million customers paying $45 a month. Do the math. And yet they went broke. Could it be the $6 Billion they blew on a worthless dotcom?

      example -- Exodus Communications had $300 million gross revenue in 2000. In 2001 they had $660 million gross revenue -- more than double the previous year -- and filed for Chapter 11 at the end of 2001. Why? Blowing hundred of millions on bad aquisitions.

      example -- AT&T hires a new CEO. Fires him less that a year later, citing "a lack of intellectual leadership" as the reason. But gives him a $26 million severance package.

      example -- Hewlett-Packard/Compaq -- History shows very clearly that there has never been a merger of this type that has worked out well. Not one. And yet the deal was done anyway because it will enrich the people who engineered the deal. 5 years from now, when Hewlett-Packard is following in the footsteps of WorldCom and Carly Fiorina is fired by the HP board of directors, it won't matter -- she and a few others will have already pocketed their millions and will draw a nice severeance package as a reward for running the company into the ground.

      example -- Dozens of companies who are doing poorly, profits are down, even losing money in some cases, but top executives receive large raises and bonuses.

      • by fw3 ( 523647 ) on Tuesday June 25, 2002 @10:09PM (#3766670) Homepage Journal
        The comparison to the auto industry doesn't work. Back when there were 50 auto companies there were a lot fewer people...

        I suggest you look up 'Kondratiev cycle technology'. Jay Forrester (inventor of magnetic-core memory), studied this at MIT/Sloan school and determined that the a long-term economic cycle develops due to the 'self-ordering' nature of capital equipment.

        Basically Forrester's group found evidence for the following feedback loop: Early in the deployment of any technology there is a scarcity of capital. Capital equipment is expensive, and early investments involve high degrees of risk accompanied by high profits in a given technology sector. That in turn brings investment in the businesses developing this capital. However, a large part of this capital is used in the development of the capital itself (i.e. IT tends to need advanced hardware and software to develop the bleeding-edge new hardware and software for actual end-use).

        Thus the 'buildup phase' of new technology creates a high demand (for both the acutal equipment and the stock of the companies that make it). At some point, however the generation of this new (and expensive) equipment (or software) exceeds the actual (end-user) demand. When this happens the high profit margins that were being realized during the build-up phase disappear quite rapidly, the investment-value follows (crashing stock prices) and the investment money looks for other places. See this article [gold-eagle.com]

        Sound familiar? Whether or not you buy into the economic details, this is one of the behaviors seen in economics. The inflated acquisition prices mentioned are the direct result of this effect.

        Because sure people make stupid mistakes even (especially?) with billion dollar transactions. But the funny thing about the stock market is that the money doesn't ever go away. Whenever someone loses in the market, someone else has made a profit.

        And yes it sucks when the players break the rules but especially on the financial rules the market punishes you very hard. I worked for a biotech firm that was growing well, showing solid net earnings ca $300m on $2b sales, a 30:1 p/e ratio. Our japan division was found to have been moving inventories to the tune of changing the sales #'s by $50m. This lie, accounting for only 2.5% caused a nearly 50% drop in stock price and a (justified) shareholders lawsuit.

        Whenever someone fsck's with the rules of the game (fixing the books, insider trading, breaking anti-trust rules, whatever), real people get hurt and we have SEC, IRS etc to try and keep up with the process. MS imo is an excellent example of how a determined and unscrupulous competitor can harm while evading the systems controls(sic).

        I'm just thanking my stars that (so far) the politicians havent fscked up like they did after the '29 stock market crash. The US enacted protectionist trade tarrifs which effectively were the first blow in killing off the *world* economy.

        Post-sept-11'th fears and RIAA / DMCA idiocies aside, at least across a several bumpy decades our boneheads in Washington, the EU, etc at least so far have managed not to fsck up. They still have opportunities to snatch defeat from the waiting hands of victory, but so far it could be a whole lot worse I think.

        • by Guppy06 ( 410832 ) on Tuesday June 25, 2002 @11:54PM (#3767091)
          "I'm just thanking my stars that (so far) the politicians havent fscked up like they did after the '29 stock market crash. The US enacted protectionist trade tarrifs which effectively were the first blow in killing off the *world* economy."

          I think this is the part that scares me the most, or at least that we have that much effect on the world economy. We have terrorist attacks in the past few months and the continuing threat of more attacks in the near future. This during the whole dot-com bubble bursting and tech companies taking big hits. Then we have Enron and Worldcomm and who know what else on the horizon. Not to mention the nose dive the US dollar is taking on the currency markets. And who gets hit hardest?

          Europe and Japan.

          Japan, already in the middle of a bank crisis they're too proud to admit to, is actively trying to prop the dollar up. The EU, who have been trying to bring the Euro to parity with the dollar, find themselves the victim of the ancient curse "May you get what you want." Foreign investors watch the value of their dollar investments go down while US exporters get nice perks like making money in currency exchange rates (even for small-time eBay shmucks like me). And I haven't even touched upon what this can do to China, who pretty much rely on their ability to export cheap labor. The only thing I'm not sure about is what this all means to those countries who have pegged their currencies to the dollar or have abandoned their currency for the dollar outright.

          The scary news is that the US has some difficult economic times ahead of us. The sacrier news is that things will still probably be better here than anywhere else. The scariest news is that we'll probably come out of this even bigger than we were before.
    • Some of my clients use Worldcom (UUNet). One of them has been burned by an ISP bankruptcy before (PSI), and another by a local provider that screwed up a premises move and went dark for days. Does anyone have any suggestions on who's a safe bet to switch to? Worldcom had some good pricing on their burstable T1s, quite a bit cheaper than e.g. AT&T, IIRC.

      Customers like choosing big-name companies because they seem like they ought to be safe. I've come across some real horror stories related to smaller, more local ISPs. So, what's an ordinary business supposed to do to get ISP service that they can rely on for a few years running, without paying through the nose?

  • I was "overqualified" to work for them. Sadly, there was a point where I was looking for something else to do. I wanted something that was basically brainless, mundane, paid okay, and provided decent benefits. I figured that although I'd hate it, I could be a decent telemarketer (I can speak, unlike 80% of normal telemarketers). I took their little employment test, did the interview, and was told that I wasn't the type of person they were looking for -- overqualified. I suppose, however, that if corporate management is going to be doing questionable things, they prefer to have mindless drones working for them. Fewer people to make mental notes.
  • Thanks, Worldcom! (Score:5, Insightful)

    by Orangedog_on_crack ( 544931 ) on Tuesday June 25, 2002 @08:17PM (#3766270)
    I work for one of the telcos, fortunately not worldcom. But these clowns are going to bury the whole market. Between the former CEO and CFO, these fuck-witts have managed to further erode what little confidence the market had left in the sector, and most likely, the stock market and economy as a whole. I hate seeing the feds overstep their bounds, but they need to make an example out of these assholes. It needs to involve time in prison....and a lot of it...and I don't mean club fed, either, where their biggest worry is getting enough time on the driving range. No, I mean prison with Bubba and all of his sexually frustrated cell-mates. These guys deserve to someone's prison-bitch for the better part of a decade. Oh, and don't forget to conficate everything that these pricks own, so they actually have to go out and get a j-o-b when they are released.
  • I had two seperate AT&T dedicated Internet sales rep's call me today, both proclaiming that Worldcom was going under and that my bandwidth to them would soon be shut off and that we would be offline.

    Neither rep's had any sort of data to back this claim up with the exception of Worldcom's current stock price.

    It wasn't until informing them that AT&T was once trading at $90.00 per share and now was under $10.00 that they finally shut up and left me alone.
    • Thats ironic, because AT&T is on the way out as well, a few more years, and bamo, they're done as well.

      They've been in free fall, and their debt is rapidly becoming the type of stuff that only the mightiest speculators will touch.

      It wont be long till AT&T is but a distant memory.
  • by MongooseCN ( 139203 ) on Tuesday June 25, 2002 @08:36PM (#3766319) Homepage
    So you're saying that after all the years of backstabbing coworkers, financial threatening, lying, politics, selling off grandma, etc to get to the top, CEO's don't suddenly become honest?

    If morals meant profits, capitalism would be the garden of Eden.
  • Yet more proof [analystscan.com] that analysts do not have a clue as to what is going on in the market. I particularly like JP Morgan's coverage [analystscan.com], which was initiated a long-term buy at around 30, then upgraded to a buy at around 8.
  • ya, but how exactly is he related to Dick Cheney?

    The funny thing is that they still have a huge ass enron sign up at pac bell park in SF. These mega-corp scandals are just getting worse and worse.

    Its not to say that this bulshit hasnt been happening for hundreds of years... but its about flipping time that some light got shed on it - and maybe the world can start getting rid of all the BS criminalism in corporations and governments by seeing this shit and finally saying that we have had enough. I am not in favor of the death penalty for humans - but i consider people who do these sorts of thing (and car salesmen/politicians) to be sub-human... so I ahve no problem with death penalties for such massive rip off scams as this.
  • Enron, Tyco, ImClone, Worldcom...

    All examples of companies that have become large and powerful by being deceptive. What does the US government do about it? Not a damn thing. Why? Because they are all big spenders and heavily linked to the political status quo.

    If you want to read a really enlightening book, check out Stupid White Men [amazon.com] - I kid you not, this book will open your eyes.

    We are at a point in the world where there is a new aristocracy - the corporate powers - and it is only getting worse. You think they control the government now? Give them another 6 years of this administration and we will all miss the days of individual freedom...

    Sorry if I come across as a downer - things just don't seem that good these days...

    Just my $.002

    --Jon
    • Enron, Tyco, ImClone, Worldcom...

      All examples of companies that have become large and powerful by being deceptive.


      Yeah, and all these companies are in the shit-can because they were deceptive. They have all lost power. This is good. This is the way it is supposed to work.

      People are running around crying about how awful capitalism is because this happened. This sort of thing is exactly what should happen. You fuck-up an lie, and your company is screwed. Good.
  • by (eternal_software) ( 233207 ) on Tuesday June 25, 2002 @09:14PM (#3766464)
    This is a serious situation. This fraud has cost 17,000 people their jobs and many others their life savings.

    A quick peek of the Yahoo WCOM Message Boards [yahoo.com] shows many desperate messages about people threatening suicide [yahoo.com] and serious financial losses [yahoo.com].

    These are the people who the suits at the top never think of, while they enrich themselves.
    • by danheskett ( 178529 ) <danheskett@NoSpam.gmail.com> on Tuesday June 25, 2002 @10:21PM (#3766711)
      These are the people who the suits at the top never think of, while they enrich themselves.

      See, thats the thing. We assume that this was done to enrich executives. This is not probably true.

      Fraud is bad yes, but this is not benefiting (in this case) the executives. It is early to say, but this isn't looking like a case of some rich guys stealing from the company for profit.

      People cover up bad news, because they know its bad. Enron, WorldCom, ImClone, they've all done bad things to cover up failure - but the cover up isn't the thing thats causing people to lose their jobs.

      The underlying issue is the business, not the accounting used to patch things up. Enron was a money losing organziation, who hid that from everyone using accounting tricks. They went bankrupt due to the core business being very risky and volatile - not due to the accounting tricks.

      The same is true at ImClone, the shady biotech company. Yes, there was insider trading, but no, thats not what caused the company to falter. The problem was the drug they were banking on was a bust.

      The same is true. WorldCom has been a money loser. That is what is going to kill the company. Accounting fraud, like is apparently the case here, isn't the culprit as much as a symptom of the larger, more serious problem of failed businesses.

      So before you jump on the bandwagon of "blame the rich guys who pirated the corporate accounts and stole nearly $4B and kept it for themselves" wait for the actual story. Chances are that money was never in the door, and profits were inflated to trick the public into thinking things were okay. Granted this is fradulent and deceptive, but its probably not how you describe it: a case of a few people stealing to enrich themselves.
      • So before you jump on the bandwagon of "blame the rich guys who pirated the corporate accounts and stole nearly $4B and kept it for themselves" wait for the actual story. Chances are that money was never in the door, and profits were inflated to trick the public into thinking things were okay. Granted this is fradulent and deceptive, but its probably not how you describe it: a case of a few people stealing to enrich themselves.

        Much as I'd like to join you planet Naive (soon to appear in a bad Lucas movie), perhaps you might consider stock options, which are worth a lot more if you kite the stock upwards? Or incentive clauses, such as forgivement of loans if stock price targets are met? I don't know if WorldCom execs made use of these standard vehicles for executive compensation, but that's been SOP in other corporate meltdowns. They don't steal cash, they prop up the stock with fraud while exercising their options (which although they are not yet required to be considered a hit against company earnings, definitely do reduce the company's equity dollar for dollar when exercized.)
    • Actually, they've been planning those 17,000 layoffs for a while now. (I know, I work for a WCOM company ... at least this week.) It's anybody's guess which came first, the scandal or the axe.
  • Audit (Score:3, Informative)

    by magurozushi ( 588273 ) on Tuesday June 25, 2002 @09:30PM (#3766545)
    Guess who was their auditor until last May... Andersen. (Bloomberg [bloomberg.com]) However, they claim WCom was wihholding information from them, hum.... Fortunately for your own company, you can't choose Andersen to be your auditor anymore :-)
  • by muonzoo ( 106581 ) on Tuesday June 25, 2002 @10:00PM (#3766645) Homepage
    Worldcom [worldcom.com] has a press release [worldcom.com] on this matter too.
  • ...WorldCom Finds $3.8 Billion Error.

    Too bad for WorldCom it wasn't the old "Community Chest" card reading "Bank error in your favor. Collect $3.8 Billion dollars"
  • by TheSHAD0W ( 258774 ) on Tuesday June 25, 2002 @10:04PM (#3766661) Homepage
    A large part of the problem of fraud within corporations is because of the construct of a corporation itself. A corporation is a fictitious person who bears the responsibility of (nearly) all acts the corporation takes; stockholders can't be held liable. As a result, stockholders will constantly push towards the profit while ignoring the means of generating that income.
  • A new generation is emerging. A generation unlike any that has preceded it-- defined not by an age, but rather an attitude. It's the first generation characterized not just by people, but by a whole new way of thinking. It's the digital generation, or as we call it at WorldCom, generation d.

    WorldCom is proud to offer its employees a full range of comprehensive benefits.

    Additionally, employees can take advantage of a corporate 401K plan, investing up to 20% of their salaries in a variety of fund options. As an added perk, WorldCom matches 100% of an employee's contribution to the 401k plan, up to 5% of the employee's salary, after only one year of employment. Planning for the future is of the utmost importance, so WorldCom makes this investment easy for every full-time employee. And with WorldCom's online employee tools, registration and management of these benefits are easy -- yet another example of our forward-thinking, next-generation company.

    Hope you didn't buy WC stock!

    SD
  • by IroygbivU ( 534043 ) on Tuesday June 25, 2002 @10:20PM (#3766707)
    I'm going to go a little off topic here, but this is my personal analysis of why we are seeing so many large companies like WorldCom collapsing in on their own corruption.

    We all know that power and money doesn't circulate within a vacuum. Everything in the world is tied together, so that when one force of influence diminishes another will rise to take its place. The five main players I see in the modern world economy are - The governments, big business, small business, unions, and workers/individual consumers. The dynamics and fairness/wealth distribution of an economy are highest when there is a balance of influence between each of those forces. Historically, they are rarely balanced (and in some countries they are completely imbalanced), but I think the opportunities to correct it are greater than ever now.

    As you may guess, I believe that the weight of influence in the American economy (in a concerted push since the early 80's) has tipped to predominantly favour big business and big government/military. Since America's economy is twice the size of number 2 - Japan - it controls global economic policy and as such is creating mirror economies to its own around the world. This imbalance is spreading like an epidemic around the world, seriously affecting other countries who model themselves off America - like my own country Australia.

    So, what can be done about it? It seems a rebalancing isn't going to happen on its own, or at least not until the current situation degenerates to a point where violent revolution is needed to fix the problem. I guess there's several paths that could be chosen but here are two off the top of my head. One - allow the current consolidation of small and medium sized business into large/uber businesses to continue but restore power to the unions. Two - shift all laws that favour big business to favour small business instead.

    Personally, I favour the latter. A society run by small business is far less likely to have organised and entrenched corruption - eg Would Dick Cheney have been swayed by the CEO of a company that controlled only one or two power stations? What benefit would a government get by helping out small companies that can't contribute many campaign funds and have little influence around the nation?

    Anyhow, I think I'll cut the sermon off here. I think +5 troll and +5 offtopic is a good enough effort for today!
  • Google Sets (Score:5, Funny)

    by jesser ( 77961 ) on Wednesday June 26, 2002 @01:44AM (#3767439) Homepage Journal
    Enron, Worldcom [google.com], Microsoft?

    (Discovered by Ksosez on #mozillazine.)

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