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The Almighty Buck

WorldCom Fraud Doubles 640

Posted by michael from the jail-jail-jail-jail-jail-jail-jail dept.
Silvaran writes "No, this isn't a repeat story. WorldCom claims another $3.3 billion accounting error. That's about $7 billion, for those that are counting. Wish I had that kind of cash to miscalculate on my income tax forms." There's also a NYT story. I love how the news outlets are saying, "error", "irregularity", "problem", as if this was all some sort of tragic accident, instead of laying out the obvious truth, "criminal fraud committed with full knowledge it was a crime".
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WorldCom Fraud Doubles More

WorldCom Fraud Doubles

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  • Dammit (Score:4, Funny)

    by TheDick ( 453572 ) <dick@askadick.cPLANCKom minus physicist> on Friday August 09, 2002 @07:28AM (#4038317) Homepage
    At this rate, I'll never be able to unload this stock.

    My biggest feat at night? That the same thing is going to happen to the telecommunications company where *I* work.

    Fuck.

  • Hey Michael (Score:3, Insightful)

    by Anonymous Coward on Friday August 09, 2002 @07:30AM (#4038325)
    I love how the news outlets are saying, "error", "irregularity", "problem",

    Those just happen to be the industry terms. The accounting has terms just like the computer industry. And considering that WorldCom executives are being arrested, it is pretty obvious that fraud is involved also. Just another slashdot editor adding his two cents to a post instead of just posting it.
    • Devnull17 has it right. It's a libel issue rather than an industry one. It's indisputable that an "error" was made, but imputing malice to the people making that error has not been proven, even though it is pretty obvious. But if there is proof, such as a conviction in court, watch the "error" turn into "fraud" overnight.

    • Re:Hey Michael (Score:4, Interesting)

      by Pxtl ( 151020 ) on Friday August 09, 2002 @08:12AM (#4038576) Homepage
      Yes, and the equivalent computer industry terms in this case would be:
      - maliscious code
      - cracking/hacking
      - backdoors in critical software
      Except that, for doing any of those things, under current laws you will be fired, fined, and imprisoned. Those laws are enforced.

      For "miscalculations" you will be noted, fined 1% of your profit, and forgotten.

      Let's compare what happened to Mitnick or Sklyarov to the worst cases of corporate fraud you can think of. Pretty depressing innit?

    • The Washington Post calls it fraud (Score:4, Insightful)

      by DearSlashdot ( 592493 ) on Friday August 09, 2002 @09:36AM (#4039201)
      http://www.washingtonpost.com/wp-dyn/articles/A613 46-2002Aug8.html [washingtonpost.com]

      "...uncovered another $3.3 billion in bogus accounting, adding to the $3.85 billion fraud it revealed in June."

      "The fraudulent accounting already revealed occurred in 2001 and the first half of 2002. The additional fraud would bring the total of phony accounting at WorldCom to some $7 billion."

      "The fraud in 2000 is said to differ from the techniques used in 2001 and 2002"

      Wow, what a whitewash!

    • I love how the news outlets are saying, "error", "irregularity", "problem"
      Those just happen to be the industry terms. The accounting has terms just like the computer industry.

      Yes,
      "error" == "heh, we fucked over the government"
      "irregularity" == "heh, we fucked over our client"
      "problem" == "oh, oh, we're fucked!"

  • Loose change (Score:5, Funny)

    by jhughes ( 85890 ) on Friday August 09, 2002 @07:30AM (#4038327) Homepage
    They 'found' three billion dollars that was missing?

    Where do you lose three billion dollars? I wanna see the size of that couch they're finding all this loose change in...

  • Isn't it odd... (Score:5, Insightful)

    by Andy_R ( 114137 ) on Friday August 09, 2002 @07:30AM (#4038333) Homepage Journal
    ...that you never hear of any accounting 'errors' that make the company look less wealthy than it is?

    • Re:Isn't it odd... (Score:3, Informative)

      by Anonymous Coward
      You do often see this - in the accounts sent to the Tax Authorities. There is a whole bunch of accounting theory around Transfer Pricing that does exactly this.

      Tom

    • Re:Isn't it odd... (Score:5, Insightful)

      by pieterh ( 196118 ) on Friday August 09, 2002 @07:44AM (#4038401) Homepage
      Uh... this is what accounting is mostly about, AFAIK. Reduce the profits, pay less tax. It's most amusing to see the opposite happening. "Uh, we've successfully raised our tax bill by $1Bn..." This could only happen in a world where a company's worth is trivialised into something as meaningless as 'profit' in order to pump up shares way beyond their real value.

    • Re:Isn't it odd... (Score:2, Informative)

      by cjkarr ( 23970 )
      Wrong. Microsoft was recently investigated by the SEC for understating its revenues. They understated how much money that they were making in order to save it for bad quarters. If that's not making a company look less wealthy, I don't know what is. It's essentially the inverse of what Enron / Worldcom did.

      There's currently an article on kuro5hin that is working its way out of the queue that describes what 'you never hear about'.

      -Chris

    • Hey, you never know... It could happen [roadsidephotos.com].
  • "A billion here, a billion there - pretty soon it adds up to real money" - one site attributes that to Everett Dirksen

  • And on top of that few billion... (Score:5, Interesting)

    by killthiskid ( 197397 ) on Friday August 09, 2002 @07:32AM (#4038341) Homepage Journal
    WorldCom also said that when the earnings are restated, it would most likely take a write-off of as much as $50.6 billion related to the reduced value of past acquisitions.

    So theres another $50.6 billion down the hole, too.


    What I don't get about telecom, esp. the telecom in my area, QWest, is how the hell they are rolling in money. My phone bill is outrageous... and they have a monopoly in the region. I know they're getting at least $40 out of every person with a phone in the midwest... where the hell does all that money go?


    • Ack! Should be 'aren't rolling in money...'


      Sigh, coffee please...

    • If they're anything like the Telco's over here, the money goes to:
      - acquisitions of bollocksy and overpriced companies
      - purchase of outrageously overpriced broadcast licenses for GSM frequencies. Which is just a hidden tax by the government, with which the politicians done a grand job looking good to the taxpayer ("look at all that extra money I got for you people!"), and at the same time stifling the development of the next generation GSM networks by making sure none of the telco's have any money left.
      - Taxes.

      Plus, keeping a network going costs a lot.
    • 6K shower curtains, 5 million beachfront properties....19 million in "forgiven" loans...

      A bit of that, and your company is short 135 million.
    • where the hell does all that money go?

      To feed a very hungry bureaucracy.
    • I know they're getting at least $40 out of every person with a phone in the midwest... where the hell does all that money go?

      If Qwest is anything like PacBell out here on the west coast, then much of that money pays for a team of about 75,000 monkeys to answer the phones - all of whom could be replaced by about six lines of perl. :)

      The rest of the money is spent on cable maintenance personnel, who are out there day after day repairing 40+ year old copper wiring and switching equipment that should have been retired long ago.

    • I'll tell you where it goes (Score:5, Insightful)

      by Fastball ( 91927 ) on Friday August 09, 2002 @10:17AM (#4039497) Journal
      It goes into that luxury box in the shiny new taxpayer-funded stadium.

      It goes into twenty to fifty $250 rounds of golf at Hilton Head Golf Club under the guise of a "management retreat."

      It goes into the corporate learjet that whisks some of these officers away to the above two destinations.

      It goes into the CEO's million dollar annual pension whether he retires a hero or gets the pink slip for delivering his company to chapter 11.

      It trickles...straight up.

      The tragedy isn't that this stuff happens. It is part of the human condition. Admit it. Most of us would do the same if we were in these fuckers shoes. The real tragedy is that we won't challenge this behavior until it is too late to make meaningful amends. Think Charles Dickens.

  • 3.3 Billion ? (Score:2, Insightful)

    by shayera ( 518168 )
    As in 3,300,000,000 $'s, bucks credits ?

    You know, I've heard about calculating errors, but
    3.3 bill, is not a calculation eror, thats darn gross negligence at beast, villanous stupidity at slightly worse, and punishable by long term jail at worst..
    There are countries that make less money than that on their national budgets.

    I sit here, and the only way I can react to this is with a slightly disbelieving laugh.. It's so far out it's almost funny in a slight Twilight Zoney way.

  • And of course, (Score:5, Insightful)

    by Fat Casper ( 260409 ) on Friday August 09, 2002 @07:35AM (#4038357) Homepage
    No actual people were responsible for committing actual crimes.

    The justice department needs to stop being a bunch of whores and realize that "limited liability" has to do with financial, not criminal liability. Fraud is fraud, theft is theft. Put them in the same cell with a guy doing 5 years for forging a check. It makes me sick.

  • The spin by the media is guided by the principle that you are innocent until proven guilty. Thus the "nice" choice of words for the WorldCom bastards who are responsible for this "alleged" fraud.

  • Handling by Justice Department (Score:5, Informative)

    by OaITw ( 155633 ) on Friday August 09, 2002 @07:37AM (#4038367)
    Worldcom's CFO is already in jail awaiting trial and the company is going bankrupt. The hotest story I am hearing on the streets here in DC is the fact that no one from Enron is in jail yet. This will increasingly stink up the Bush administration since his staff has so many Enron ties. Enron was Ashcroft's largest campaign supporter. Congress passed laws making rules tougher for future wrongdoers but it is not clear to me that the rules needed to be made stronger. Imclone, Worldcom and Adelphia C?Os are already in jail under current laws. Why haven't the laws been applied to anyone at Enron?

    • Why Enron Execs Aren't In Jail Yet (Score:5, Informative)

      by grendelkhan ( 168481 ) <scottricketts.gmail@com> on Friday August 09, 2002 @07:53AM (#4038453) Journal

      While Dubya may be a doofus, he at least knows how to put his finger to the wind, much like his old man did, in the past he was leaning off his buddy Ken, but now that the winds have shifted, Kenny and company are just waiting in the on deck circle.

      What I've been reading about the whole Enron thing, it's not a matter of figuring out who the bad guys are, but unravelling everything enough to have a clear picture to take to a grand jury. The "accounting practices" of WorldCom, Global Crossing, Adelphia, etc. are pretty blatant. Enron takes this to a whole new level.

      Imagine a 4500 machine network wired by a pack of monkeys hopped up crack, crystal meth, and mescaline, and you'll have a pretty good idea of how convoluted the shell game that Enron was running was. Ken Lay and his boys are going down, it's just going to take awhile to untangle the wiring.

      Not that Dubya wouldn't cover for him if he could, but that would be total political suicide.

      • Come on, that (last part about covering for Lay, the first part seems correct from what i'm hearing) is nonsense! If Pres. Bush was so ready to go to bat for Enron then why would he refuse help prop Enron before the whole scadal broke?

        Pres. Bush is a good and honorable person who makes his decisions based on what's morally and ethically correct, not by putting his finger to the wind; unlike our last president.

        I'm really tired of hearing people smear a good and decent man, I may not agree with everything he's done but he's certainly a person with integrity.

        • Bush "morally and ethically correct"? (Score:4, Informative)

          by haaz ( 3346 ) on Friday August 09, 2002 @10:28AM (#4039570) Homepage
          If getting business after business bailed out at taxpayer expense qualifies you as being "morally and ethically correct," I guess Bush is.

          If being AWOL during your time in the National Guard (which coincided with the Vietnam War) qualifies you as being "morally and ethically correct," I guess Bush is.

          If killing more people in Afghanistan than were killed in the World Trade Center qualifies you as being "morally and ethically correct," I guess Bush is.

          If getting in the White House by winning a lawsuit after depriving thousands of their right to vote, qualifies you as being "morally and ethically correct," I guess Bush is.

          Research the Bush family a little bit. Find out about Laura Bush's homicide via hit and run. Notice what agency G.W.H. Bush headed in the 1970s. Find out where Prescott Bush got his money from. Look at how much the Carlyle Group and Halliburton have received as a result of the W.'s war. See if you still think they're qualifies you as being "morally and ethically correct."
        • Buddy, I don't know if this is a troll, but I'll bite.

          Pres. Bush is a good and honorable person who makes his decisions based on what's morally and ethically correct, not by putting his finger to the wind; unlike our last president.

          I'm really tired of hearing people smear a good and decent man, I may not agree with everything he's done but he's certainly a person with integrity.

          W is a bully and a slacker. He can barely read, write or speak english. Take a look at The Bush Dylsexicon [amazon.com] for an in depth character study (not political or economical, but character). This man is my every nightmare.

          Bush and co are probable the most insidious lot ever to make it to the Whitehouse, and that is saying a lot. I lived in Texas when he was elected Governer. He lied and twisted everything in his campaign. He tried to ruin the Texas education system and was only prevented by a legislative override (he later took credit for this). He assaulted the prior Governer for her prison reform actions, then later took credit for those.
          Now, at a national level, he is sending the national budget into extreem defecit so he can give massive tax breaks to all the rich people, while everyone else will end up paying for the debt.

          As far as putting his finger to the wind, he seems to have little or no interest in what the public wants unless EVERYONE gets right in his face about it and threatens him.

          Nuff said.

    • Do some research-
      Its not just the Bush administration that Enron was tied to. It was the Clinton administration as well. Numerous Senate DEMOCRATS have ties to Enron as well.

      The Bush/Enron crap is just a smear campaign. It works too, because people like you don't care to look at facts.
    • Maybe the Democrats don't want to delve into Enron too closely, seeings how former Clinton Treasury Secretary Robert Rubin, now at Citibank, lobbied his former colleagues at the Bush Treasury department to help bail out Enron. Citibank's on the hook big-time for Enron loans. The Bushies politely told Rubin to go away. So far, Rubin is the only compromised politico related to Enron that anyone's been able to find.

      When they can straighten out who did what to whom, I'm sure we'll see Enron weasles being hauled into jail. But before a prosecutor goes up against a potential OJ jury he's going to want to take time to assemble a bulletproof case. Proving intentional fraud (rather than mere incompetence, "irrational exuberance", etc) can be a bitch.
    • Perhaps its because that what happened at enron is 10x more complex than what happened at World Com and Adelphia.

      White collar crime cases take time to put together. Arresting people for the sake of looking like "we're doing something":
      1. doesn't work out too good
      2. tramples on the rights of the innocent

    • Re:Handling by Justice Department (Score:5, Insightful)

      by Jeppe Salvesen ( 101622 ) on Friday August 09, 2002 @08:53AM (#4038835)
      Pardon me for interfering with / analyzing your domestic policies.

      What you are experiencing is quite normal. After a period of living out of touch with reality, you're falling out of the clouds. Gravity is a bitch.

      Enron to me exemplifies that your power structure is far from ideal. Rather than having the people pay for the campaigns (through the national treasury), you have the corporations that care about profits and only profits buying influence in the political circles. Giving corporations a lot of power is generally a bad idea, since they care less about ethics and more about money.

      Greed is essentially a destructive force. Greed fosters bad judgement and short-term benefits. The Enron and WorldCom people knew they were out of line, but the enormous payoffs kept them going even though their logic central must have been saying "you're way out of line, mister. this will collapse!". I would look really hard for executives who quit after the accounting fraud began. Some of them might have seen where this was going, and left the sinking ship with bloody hands - their common sense overpowering the greed.

      As Aimee Mann sings - "it is not going to stop.. until you wise up". You really, really need to look at who you elect during the upcoming elections. Don't just look at the words, but examine the past. If you wish to come through this alive, you'll need wisdom and courage, not demagogues (sp?) and special interest representatives.

      If this was not so damned serious, I would be experiencing some schadenfreude now, but this is too damn serious on a global scale. I really hope you'll learn your lessons and regain your balance.
      • Enron to me exemplifies that your power structure is far from ideal. Rather than having the people pay for the campaigns (through the national treasury), you have the corporations that care about profits and only profits buying influence in the political circles. Giving corporations a lot of power is generally a bad idea, since they care less about ethics and more about money.

        I guess that depends on the corporation in question. Most politicians aren't bad people, and a good politician won't sell his soul for any amount of campaign money. European nations with different systems have hardly been free of political scandal. In any case, campaign donations aren't the only way for corporations to influence the government. And a reasonable level of corporate influence is not an entirely bad thing. Fashionable cynicism aside, blind anti-corporatism is just as bad as blindly going along with whatever corporations want.

        Greed is essentially a destructive force. Greed fosters bad judgement and short-term benefits.

        Greed is an inextricable part of human nature. By itself it's not destructive or constructive, it just is. Sometimes it's greed for money, sometimes for power, other times for fame. It can be channeled to drive us toward good things as well as bad. It's how we react to our selfish impulses that determine the morality of our actions.

        As Aimee Mann sings - "it is not going to stop.. until you wise up". You really, really need to look at who you elect during the upcoming elections. Don't just look at the words, but examine the past. If you wish to come through this alive, you'll need wisdom and courage, not demagogues (sp?) and special interest representatives.

        Oh, we'll come through it alive. The country has seen far worse situations than this is likely to cause for the average person. And I think we've got wisdom and courage aplenty, thank you. I personally think the current administration is doing as well as any could, and I think it's disingenous to pretend that that the previous administration or any of the alternatives that were running were somehow blameless or less "tainted".

  • Spin doctoring (Score:5, Interesting)

    by zevans ( 101778 ) <zacktesting&googlemail,com> on Friday August 09, 2002 @07:37AM (#4038370)
    Maybe the American press are skirting the issue - but the British press certainly aren't: try
    The Guardian [guardian.co.uk] ("fraud" appears 5 times) and The Times [timesonline.co.uk] which even uses the word "scam".

    Zack

    • Thanks for that. You forgot to mention that both newspapers have a well-documented history of sensationalizing and editorializing their news content.

      At least in the U.S., opinion pieces are [usually] clearly marked as such.
      • All news content is 90% opinion and 10% fact... That said, the Times is far from a 'sensational' newspaper, and probably the most respected newspaper in this country. If you were talking about the Daily Mail I might just agree with you.

        The execs at Worldcom and Enron are just crooks, and the only reason they aren't bending over in the showers of a maximum security prison at the moment is the protection of the US corporate state (it ceased to be a democracy years ago).
      • Thanks for that. You forgot to mention that both newspapers have a well-documented history of sensationalizing and editorializing their news content.

        I think you must be confused. Both the Guardian and the Times are very well respected.

      • "well-documented history "? - examples? (Score:5, Informative)

        by fantomas ( 94850 ) on Friday August 09, 2002 @09:05AM (#4038925)

        Are we talking about the same Times? I think my friend is referring to the London Times here.


        Please give us some examples of the "well-documented history of sensationalizing " the Times indulges in.


        Certainly the New York Times has a more glamourous, brash look to it, the last time I read it (last over in February).


        I have to agree that the UK tabloid press are some of the most appalling rags in Europe, perhaps it is these you refer to?



        The Guardian is mildly left of centre which would probably annoy most of the slashdot US readership from a political perspective, but hardlt a gutter rag, and The Times is one of the most establishment, conservative papers around.


        Looking forward to hearing your examples...

  • Wish I had that kind of cash to miscalculate on my income tax forms.

    You might not have the cash, Michael, but a slight "miscalculation" like that could find its way onto your tax records... You're talking to a crowd of 31337 hax0r5 here! (Or at least a lot of wannabees)

    (Imagine the look on Michael's face next time he gets a letter from the IRS)

  • Whoops... (Score:4, Insightful)

    by Beautyon ( 214567 ) on Friday August 09, 2002 @07:44AM (#4038400) Homepage
    the obvious truth, "criminal fraud committed with full knowledge it was a crime".

    We call this Libel / Slander.

  • News flash (Score:3, Funny)

    by yeoua ( 86835 ) on Friday August 09, 2002 @07:45AM (#4038406)
    I can just see it now...

    "
    Top Story of the day! Today WorldCom states that indeed, it has never earned a profit at all, explaining that what they had previously thought was only an error of about $7 billion, actually was much more.

    'Apparently after some more thorough investigation, not only has WorldCom never turned a profit, but all figures that could have been called profit were in personal bank accounts in the Swiss. We found that 90% of all documents pertaining to the company were also forged... leading us to believe that the very existance of WorldCom maybe fraudulent,' explains an investigator.

    Another investigator merely states, 'It's just a front used to collect money. Now they owe everyone everything that they've ever taken in.'
    "
    • Further investigation showed that the company was actually run by a man claiming to be high ranking official of the Nigerian government.

      When questioned, the man stated that he was just borrowing the money for a little while because he needed to sort out some paperwork; after which a trillion dollars would be sent back to all investors in the scheme.

  • Vested Interest (Score:2, Insightful)

    by BooRadley ( 3956 )
    I love how the news outlets are saying, "error", "irregularity", "problem", as if this was all some sort of tragic accident, instead of laying out the obvious truth, "criminal fraud committed with full knowledge it was a crime".

    The reason for this might be that news outlets are small parts of much larger companies, who also happen to be vulnerable to the rise and fall of the market. If you take a look at any of your major news sources, you will find that they are also fully-owned subsidiaries of large megacorps. Controlling the spin on the stock market in general is in the best interest of those who are directly affected by the public's confidence in investing in corporate stock.

    For the most part, corporate news has long since quietly renounced its role as public watchdog, and is now little more than a marketing arm for its new masters.

  • 33 Bucks! (Score:2, Funny)

    by ThulsaDoom ( 574868 )
    The IRS threatened to CASTRATE me for misscalcuating 33 bucks on my Mass. income taxes. Apparently though if your a full time accountant for Worldcom you can let 3.3 BILLION slide for 3 years!!!?!?!?!? wtf?

  • "The Clinton, Miss.-based company ..." (Score:3, Funny)

    by sdo1 ( 213835 ) on Friday August 09, 2002 @07:48AM (#4038428) Journal
    Worldcom is based in Mississippi? Well why didn't they just say so.

    The missing money? It's buried in mason jars out behind the shed. Sheesh.

    -S
  • Let he who is without sin..


    I defy anyone to come in here and deny they ever miscounted change.


    I realize that $3.3 billion sounds like a lot to the average person..


    You have to remember that we aren't talking about REAL money here


    I did not have fraud with that corporation.

  • No Government Bailout In Sight (Score:4, Insightful)

    by scum-e-bag ( 211846 ) on Friday August 09, 2002 @07:58AM (#4038484) Homepage Journal
    About forty years ago, it looked like Lockheed was going to go bankrupt. The stock fell from $60 to $3, which was below par (i.e. breaking up the company and selling off the assets would have recovered more money than the stock was selling for). The problem was that Lockheed wasn't just a defense contractor, it was the defense contractor, and during the height of the cold war, to boot. They couldn't be allowed to go bankrupt.

    So the government bailed them out.

    Then, some years later, there was a little problem at a generating plant owned by General Public Utilities (GPU). You might not have heard of GPU but you've heard of the plant: Three Mile Island. GPU stock took a hit, as you might imagine. In fact it looked like it might go broke. The problem was that it was a utility, which means it was a monopoly. If it went broke the lights went out over a fair stretch of countryside. That couldn't happen.

    So the government bailed them out.

    Now, my father saw both of those coming. He bought Lockheed stock at fire-sale prices because he knew that they couldn't be allowed to go broke. He cried because he couldn't afford more. He made out like a bandit.

    When GPU started to go under, he bought all the GPU stock he could. And this time, he could afford more. He made out like a bandit. So well, in fact, that he assured himself a comfortable retirement. He's quite conservative, and told me ruefully, "I always preached the values of thrift and economy. Now I'm comfortable in my old age, but it isn't due to any of that. Hmph."

    Then the Seattle public utility, through a boring series of blunders, started to go broke. They couldn't be allowed to go broke, for the same reasons that GPU couldn't and Lockheed couldn't.

    So the government...said "Hey! Wait just a darn minute here!" And didn't bail them out.

    And they went broke. And the lights stayed on.

    Ditto when California started having rolling blackouts. Big raspberries from the Fed, because the Shrub knows California wouldn't vote for him if he was rolling out the red carpet in front of Jesus Christ for the Second Coming. Much stick-waving, stunningly bad contracting, and shouting, but the lights came back on and stayed that way.

    The days of government bailouts are over.

  • their old pentium,
    they would never had such errors' ;-)

    I swear your honnor! I only rounded to the nearest decimal!
  • I love how the news outlets are saying, "error", "irregularity", "problem", as if this was all some sort of tragic accident, instead of laying out the obvious truth, "criminal fraud committed with full knowledge it was a crime".

    Strangely, Michael, it is a convention of the "old media" that one does not refer to someone as having committed a "criminal fraud committed with full knowledge it was a crime" until that person has been found guilty in a court of having done so.

    For Christ's sake. Why don't you just go the whole hog and shout "Get a rope! Let's lynch the bastards now!".

    If slashdot posters started referring to Michael's "libellous editorial comments committed with full knowledge that he was libelling someone" rather than "stupid remarks", "arrogant editorialising" or whatever, you'd be out of a job in no time.

  • broke the internet camels back.

  • Speaking of taxes... (Score:3, Funny)

    by tlambert ( 566799 ) on Friday August 09, 2002 @08:15AM (#4038602)
    Speaking of taxes...

    I'm guessing WorldCom gets back their tax paid on their overreported income?

    If so, it's really to their advantage to dig up as much overreporting as they possibly can, now that it's out of the bag and they can't hurt any worse for it.

    Maybe they can find enough overreporting that they will be able to claim a profit again this year... after classifying their tax refund as income, of course...

    -- Terry

  • From the article at news.com.com:

    The bankrupt telecommunications giant says an audit reveals another $3.3 billion in accounting errors, bringing the total to more than $7 billion.

    So... $3.3x10^9 + $3.3x10^9 > $7x10^9 ??

    WTF kind of math are these auditors using???

  • I have a few questions... (Score:4, Interesting)

    by gamorck ( 151734 ) <jaylittle AT jaylittle DOT com> on Friday August 09, 2002 @08:19AM (#4038619) Homepage
    (1) Why isn't every single member of Worldcom's Board of Directors in jail right now? So its okay to throw some kid in jail for cracking some piss poor encryption on a PDF file - but its not so okay to throw some suit in jail that knowingly stole billions upon billions of dollars from investors?

    (2) Why hasn't Worldcom's stock been delisted? I mean comeon now - I think its about time to hang up the saddle and go on home because this horse isn't getting back up.

    (3) Why is Worldcom being allowed to write off 50 billion dollars (as mentioned earlier) in addition to the 7 billion they already stole? I think Bernie Ebbers and friends better get out to the street corner and start "sucking it up" so he can play these people BACK.

    (4) And once again - WHY AREN'T THESE FSCKING IDIOTS IN JAIL? If I bounce a check for 100 bucks I'm sure to face the consequences - yet if they "steal" 7 billion dollars its okay?

    J

    • Why is Worldcom being allowed to write off 50 billion dollars (as mentioned earlier) in addition to the 7 billion they already stole?


      Because most of the "value" of a publicly traded company is ethereal: If company A buys company B for a stock swap or equity issue of $100 billion, then theoretically company A's value increases by $100 million. Of course in actual assets, company B might contribute maybe $10 million, at most. If company A totally fubars company B (cough..cough...HP...Compaq...) and they don't integrate well, and things like goodwill are lost (like when a well known company is absorbed and has its name changed, etc. The "Good will" of the company is largely evaporated): At some point company A has to reassess the book value versus the real world value, and that's when you get these massive write downs.

      It really is ridiculous, and criminal, the way many big businesses operate. The whole business world goes through cycles, probably about 8 year cycles, where they merge, and then they divest, then they merge, then they divest. The purpose, of course, is because CEOs and their board pad their pockets during every phase in the cycle, yet down the line INVARIABLY they are writing off tens of billions of dollars of shareholder value. The one bright point of this whole fiasco is that maybe, just perhaps, the investment community will have wisened up and won't tolerate this is the future. Of course, it's more likely that the robber barons will be back at in in a few years, after our short memories have gotten the best of us.

  • They'd better check to see if three disgruntled employees planted a virus in the system.

    Send those bastards to a federal pound-me-in-the-ass prison.

  • In related news, the federal government has reversed the Greene decision, and is putting the pieces of AT&T back together. Government sources are quoted as saying "What the heck were we thinking!?!?".

    -- Terry
  • I know that the Worldcom issue is not quite this simple. Worldcom was writing off operating expenses as capital investments. I also can't believe that I am advocating higher taxes, but...

    During this bubble, companies were doing everything that they could to overstate earnings.

    I do exactly the opposite with my company. I hire a sharp accountant to make my profits legally look as small as possible. I have to write a big fat check to the IRS at the end of the year for my profits. I certainly wouldn't want to overstate them.

    It also seems to me that if I was pulling this kind of stuff I would be in a federal pound you in the ass type of prison already.
  • Income smoothing was a problem for Microsoft too.

    Here's a Seattle Times [nwsource.com] article talking about the settlement.

  • Former Big 5 employee spills all!!! (Score:5, Informative)

    by guacamolefoo ( 577448 ) on Friday August 09, 2002 @09:08AM (#4038957) Homepage Journal
    I used to work for a Big Five accounting firm (not Andersen) and I did a variety of work -- tax consulting, mostly, but also some auditing. I am both an accountant and an attorney. I have left the tax world for the general practice of law, and despite all the lawyer jokes to the contrary, I feel "cleaner" about what I do now (mostly chasing ambulances). I would never have guessed that if you asked me about it when I graduated from law school lo those many years ago.

    Here is my spin on the Worldcom situation:

    1. Auditors will never, I repeat, never, catch outright fraud at companies they audit if the company is actively trying to deceive the auditors. Auditors look at only a fraction of financial records of a company, and if certain transactions are concealed or are outright misrepresented by the audited company's employees, it is extremely difficult to get to the bottom of the situation. Auditing is, reduced to its bare essence, statistical sampling of transactions with the sampling focused on major items and a certain percentage of the "ordinary" transactions. At a large company like Worldcom, it would be relatively simple for the CFO to completely fool the auditors (most CFOs come from the public accounting world and know very well the game that they are trying to cheat at).

    2. Audits do not pass on the quality of a business, they simply try to determine if a company has followed "generally accepted" financial accounting practices as promulgated by the financial accounting standards board FASB - located in CT, home to Joe Lieberman who fought vigorously an attempt to reform accounting back in 1995, btw -- it's not just Harvey Pitt and the GOP Enron cronies at work here - the whole system is rotten. Shareholders who expect auditors to let them know a business model sucks will be waiting a long time and they are exhibiting pathological ignorance.

    3. Of all the big accounting problems rearing their heads, a disproportionate number are coming out of Andersen audits. KPMG, PWC, E&Y, and C&L are all mostly avoiding the maelstrom. Why? The culture at Andersen? Leadership at Andersen? I honestly do not know, but it is striking that Andersen is auditing most of the problem children of the stock market.

    I know people at Andersen at all levels who are smart, diligent, and honest. I have worked with many folks from Andersen. People move from Big Five firm to Big Five firm all the time, so there's no inherent "you are evil if you audit for Andersen" rule. I am at a complete loss to explain why Andersen is in the neighborhood at the time all these arsons are taking place, but it seems peculiar.

    4. The changes recently enacted by the Congress and GW prohibiting consulting and auditing to be done by the same firm will do bupkus to stop accounting problems. The biggest source of accounting fraud results from the company misleading auditors. "Aren't the outside auditors professionals? Can't they see through the frauds?" The simple answer is, no, they can't under most circumstances where they are being wilfully mislead by the audited company. Outside audits are simply not as good a method for identifying fraud as the public perception makes them out to be.

    5. Something I have seen pushed hard by accounting firms is what is called an accounting "product." Accountants have things they sell to companies and their work involves "deliverables." It is first and foremost a business.

    What are the "deliverables" that I am now most vividly recalling? Ways to move debt off of balance sheets by arranging lease purchase agreements. Setting up subsidiaries to hold assets that drag on earnings growth. The thing is that these sorts of strategies complied with FASB rules for GAAP. The Big Five became more and more aggressive at coming up with and pushing these strategies. Nothing was more desirable than going into a company you audited with something that could add a cent or two to EPS while following GAAP and then billing $20 million dollars for it. There were (and are, I am sure) national sales teams pushing the hell out of these things.

    What is the significance? The underlying businesses of the companies that purchased these products did not change. The reported earnings appeared to be growing or growing faster with no substantive change in the quality of the audited business. Especially at a time where P/E multiples were at record historical levels, an added cent or two could result in billions (BILLIONS) of added market capitalization. Combine that with the enormous amount of stock options offered to management level folks, and you begin to see why these "accounting products" were so popular -- accounting firms got huge fees, execs got enormous increases in the value of the shares/unexercised options, and the cost to the audited business was a pittance in comparison.

    Your average investor knew nothing about this. The average brokerage firm analyst probably knew less than s/he should have. Finance majors know very little about accounting and generally end up on Wall Street sneering at their boring(!) friends who majored in accounting who largely go to the financial accounting world. The result is that the audited companies (and their management) were in the middle knowing pretty much the whole story while trying to mislead investors and analysts (who have their own house to clean, btw).

    The fact that all of this took place during one of the biggest bubbles in the history of american financial markets only exacerbated the problem.

    For /. readers from other countries, I hope you aren't getting too giddy about this. The simple fact is that many, many studies have been done about transparency of financial reporting and business ethics. The US is always at or near the top of those studies in having transparent accounting/reporting and having a reasonably honest system. In the present, only a tiny, tiny fraction of publically-traded companies have been affected by this, and I think the worst is over. I think overseas investors should wonder about what is being concealed on the books of some of their companies. Japan's banks' problems are widely known, but I throw that out there as an example. I will bet that it is not just the US affected by this -- the US is simply the most prominent place where it is going on. The fact that many people around the world like to watch the US get it in the crotch from time to time doesn't hurt the publicity, either. Especially after so much nationalistic chest-thumping from the US about its place in the world lately. I understand the schaden freude, but I don't necessarily think that the smugness associated with it is really very wise.

    Long enough, back to work. So many people to sue, so little time. (that's a joke, people)

  • Credits in other countries (Score:3, Insightful)

    by metlin ( 258108 ) on Friday August 09, 2002 @10:05AM (#4039411) Journal
    This is bad not just for the US, but for a whole lot of other economies in other countries.

    Just as an example, VSNL, a semi-govt. owned organization in India and the biggest ISP, had deals worth billions with WorldCom.

    Now, VSNL is unsure whether it would get the services or the money. The crux of the matter is that this would affect the shares here a whole lot more, since there are a lot of companies that use the services from VSNL, which in itself is paid for.

    And unfortunately, who pays for this? The second and third tier customers in developing countries, who have to endure a whole lot more than their counterparts. Because, they too would be accountable, and I'm just waiting for the VSNL stock prices to plummet, along with others.

    I think the executives of Multinationals should be held responsible and should be put to something of an international tribunal that analyses the consequences of their actions, worldwide.

    Maybe the punishment should be to throw them in some third world country's prison with hardly a square meal a day and no water to drink, then they'd understand what the hell they were doing.

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