A Forgettable Chapter in Corporate Accounting

Some 20 years ago, I was attending an investment conference in New York when I found myself in an elevator with a towering figure dressed in a long and wildly expensive overcoat with an unlit cigar in his mouth. I had been at enough of these things to know a VIP when I saw one. With a head of thick silver hair and an obviously manicured beard, I didn’t know who he was at the time nor did I realize how much of our editorial content he would later occupy.

It wasn’t until several years later when I read a profile in BusinessWeek did, I learn he was the chief executive of what was then a skyrocketing telecommunications company in Mississippi called WorldCom. His was a true rags-to-riches story, coming to the U.S. from Canada to play basketball at a small college and then investing in a chain of motels. His net worth was once estimated at nearly $1 billion. Many of you Baby Boomers and Gen Xers probably know, as the late Paul Harvey used to say, “the rest of the story.”

In essence, a series of accounting “irregularities” forced the company to restate its earnings by several billion dollars and which eventually morphed into a fraud to the tune of $11 billion. The well-dressed executive and my elevator companion, Bernard J. Ebbers, received a 25-year prison sentence for securities fraud and filing false reports. Thousands of employees lost their pensions and savings and the company soon padlocked its doors.

Until one Bernie Madoff would command similar headlines some six years later with a scandal whose scope made WorldCom seem like a Times Square shell game, WorldCom was the largest fraud ever perpetrated in American business annals.

The tragedy that unfolded has been chronicled in several books and countless articles on how upper management applied so much pressure to the company auditors that regular working folks made choices they probably never envisioned.

Eventually the accounting fraud had metastasized so large that federal agents literally invaded the corporate headquarters and seized all records and documents.

I bring this up only because I saw that Ebbers died last week at the age of 78 after serving 12 years of his sentence. He had been given an early release due to declining health and one report said he had lost over 60 pounds during the last several months.

I doubt his passing was much of a comfort to former WorldCom employees, many of whom years later are undoubtedly still trying to piece their lives back together.

Sadly, if history has taught us anything is that corporate fraud, like disease can be controlled but never completely eliminated.