Enron and worldcom collapse

[bilal azhar]

Can some senior member tell me in detail what happened in Enron and worldcom.What were the reasons of their collapse.

bilal

[Desert Sleet]

<b>The Enron Debacle </b>

Enron was George W. Bush's biggest donor and gave over $560,000 to Bush's gubernatorial and presidential campaigns. Due to the debacle of Enron thousands of employees have not only lost their jobs but in many cases have lost their 401k pension funds. The 7th largest corporation in American has been accused of misleading its investors by using overseas subsidiaries to hide more than $1 Billion in debt and filing false and misleading information with securities regulators.Enron's accounting firm, Arthur Anderson, seems to have gone along with these deceptions.

What makes the Enron story so serious is that it may be the tip of the iceberg as far as corporate corruption is concerned. People are now anxious about their 401k accounts and their ability to protect their retirement money in the future. About 45% of the wage earners in the U.S. now own substantial amounts of stock. Because of deregulation and other schemes many of the protections once afforded to stockholders have been quietly repealed or eliminated and other protections never made it out of congressional

Enron is just one of many corporations that is overvalued and hides its true earnings through deception and clever accounting practices (consider Tyco or Global Crossing. Just consider the stock bubble.





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If I could... Then I would... Turn back time!!

[syedhassan]

hi there...
sure... there's much increase in fears for high earning firms in US....
i think the story seems more intersting when we see that...
both the ENRON and WORLDCOM had STOCK VALUES at peak near their collapse..
and some fraud inspectors say.. it was due to BOGUS SPECULATION of stocks at markets...
they actually earned much of the super normal profit in forms of STOCK VALUE...
and much blam is on the DIRECTORS of both the colapsees, as now, the CEOs
rarely participate in appointing directors.. as the BNC(BOARD's NOMINATING COMMITTEE ) where the CEO is only participates as a voting member..
i think what made them cought, was.. the rapid increase in losses
and also proportionate to profits earned over the years..
IN SHORT...
POOR POLICIES LED THEM TO COLAPSE...
regards...
syedhassan..



ACCA

[bilal azhar]

Does nobody know about the worldcom collapse?
who were the auditors of these companies and what punishment they got?

bilal

[Desert Sleet]

<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by bilal azhar</i>
<br />Does nobody know about the worldcom collapse?
who were the auditors of these companies and what punishment they got?

bilal
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
IN 2001, when Enron Corporation filed for bankruptcy, the biggest in the corporate history of the United States, amid charges of dubious accounting practices and a scandal over favours shown to the company by the political establishment, shocked investors were assured by President George W. Bush that Enron was just a case of one "rotten apple" in an otherwise healthy corporate system. Since then, however, a string of sleaze-hit collapses of high-profile companies in the U.S. has raised the fear that the corporate system is rotting at its very core. Recent revelations that WorldCom, one of the biggest telecom companies in the U.S., fudged accounts to show inflated profits in the two preceding years, have rekindled the debate on corporate accountability. There is also growing anger about the culture of greed in the boardrooms.

WorldCom was the quintessential New Economy company. It was the second biggest long-distance telecom company in the U.S and was also the biggest carrier of Internet traffic and electronic commerce in the world. During the 15 years of its existence, the company grew at a scorching pace, fuelled by the almost insatiable appetite of its former chief executive officer (CEO) Bernard J. Ebbers for acquiring companies. As long as the stock market boomed and the dot com business expanded recklessly, not a thought was given to the fundamentals of the company. Wall Street analysts and investment bankers looked the other way even as auditors failed to exercise due diligence.

In March 2002, the U.S. Securities and Exchange Commission (SEC) sought information from WorldCom about its accounting procedures and about loans it had extended to its officers. In April the company announced that it was cutting 3,700 jobs. Soon after, Standard & Poor's, Moody's and Fitch downgraded WorldCom's credit ratings. The U.S. Justice Department has launched an independent probe into the WorldCom scandal.

In April 2002, Ebbers resigned as CEO after an SEC probe revealed that WorldCom had lent $339.7 million to him to cover loans that he took to buy his own shares. In May, Standard & Poor's reduced WorldCom's credit rating to junk status and WorldCom was removed from the prestigious S&P 500 Index. On June 25, the company announced that improper accounting of $3.8 billion in expenses had covered up a net loss for 2001 and the first quarter of 2002. The company also announced that it planned to shed 17,000 jobs, more than 20 percent of its workforce. The Nasdaq halted trading in WorldCom's stocks of WorldCom Group and MCI Group. In four months, ending April, the share price fell by over 80 per cent. On June 26, the SEC filed a suit alleging "securities fraud" against WorldCom in a district court in New York. It alleged that WorldCom's top management "disguised its true operating performance" and "misled investors about its reported earnings".

Even as the company was sliding, it announced on June 25 that it was "restating" its income for 2001 and the first quarter of 2002. It said that an internal audit had revealed that earlier financial statements of the company had deviated from accounting principles, resulting in an over-statement of its revenues and profits for 2001 and the first quarter of 2002 - to the tune of $3.8 billion. The company had used a simple trick in its balance sheet to boost revenues and profits while hiding expenditures. By classifying ordinary day-to-day expenses as investments and long-term expenses associated with the acquisition of capital assets, on which companies enjoy certain tax advantages, WorldCom was able to hide expenses to the tune of nearly $4 billion and instead show this as profits. One of WorldCom's major operating expenses relates to its "line costs", the fees that it pays to third party telecom network providers for the right to access their networks. In effect, WorldCom capitalised these fees, terming them as investments, when, in fact, they were one of the most important day-to-day expenses. The SEC, in its complaint in court, stated that WorldCom's top executives did this in order to keep Wall Street happy. The shock turned to anger as it became known that Arthur Andersen, the now-disgraced auditing and consulting major and a player in the Enron saga, was WorldCom's auditor too.



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If I could... Then I would... Turn back time!!