Question

1) Do you think Bernie Ebbers knew about the fraud being perpetrated at WorldCom?  

2) Why or why not?  

3) Assume Bernie did know.  Do you think his punishment/sentence is fair?

Answer 1

1) Worldcom was one of biggest accounting scandal as well as biggest bankruptcies in history of U.S.

2) Its former CEO Bernie Ebbers was considered to be the mastermind of scandal and was sentenced to 25 years of imprisonment.

We also think that Bernie Ebbers knew about $11 billion fraud being perpetrated at Worldcom because:

• It was revealed that in year 2000 he borrowed $400 million from Bank of America to cover margin calls, using his WorldCom shares as collateral.
• To hide company's falling profitability, WorldCom inflated net income and cash flow by mentioning expenses as investments in its statements. By capitalizing expenses, it exaggerated profits by around $3 billion in 2001 and $797 million in Q1 2002, reporting a profit of $1.4 billion instead of a net loss.
• Bernie ebbers ran the company but he said that he didn't know how his employees has played with the number which was totally a baseless argument.
• Ebbers had shown a relish for even the smallest details throughout his business career, whether as a small-time motel operator or high-rolling deal maker so it was impossible that he didn't know about such a big fraud.
• Ebbers claim that he knew little about technology and has little knowledge about financial statements which was disparaged by executors as aw-shucks defence.

3) The punishment given to Ebbers i.e. 25 years of imprisonment is somewhat stiff and harsh as by that time he would be of 86 years of age but it was necessary also to teach him a lesson otherwise other bigger frauds would take place in future without any fear of punishment.