MCI Inc.

American Telecommunications Company

What is MCI Inc.?
⬡ It is an American Telecommunication
corporation and it is currently a subsidiary of
Verizon Communications.

⬡ It was the United States’ second largest long

distance telephone company and it grew largely
by acquiring other telecommunications
companies.
History
MCI Inc. began as Long Distance Discount Service Inc. during 1983, based in Jackson,
Mississippi.

In 1985, LDDS selected Bernard Ebbers to be its CEO.

The Company became traded publicly as a corporation in 1989 as a result of a merger

with Advantage Companies Inc.

In 1995, the company name was changed to LDDS World Com and relocated to
Clinton, Mississippi.

In November 4, 1997, Worldcom and MCI Communications announced their US $37

billion merger to form MCI WorldCom making it the largest corporate merger in
U.S History.
Fraud
Committed
“ Worldcom inflated net
income and cash flow
by recording
expenses as
investments.
There are two ways on how the fraud was committed:

1) Booking interconnection expenses with other

telecommunication companies as capital
expenditures on the balance sheet instead of
expenses.

2) Inflating revenues with bogus accounting entries

from corporate unallocated revenue accounts.
 Pressure Rationalization

The Telecommunications To maintain the

industry was in decline. Opportunity appearance of ever-
growing profitability.
- Booking line costs
(interconnection expenses
with other
telecommunications
companies as capital
expenditure instead of
expenses.
- Inflating revenues with
bogus accounting entries.

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Controls implemented
A small team of internal auditors at
WorldCom worked together, often at night
and secretly, to investigate the fraud.

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$3.8 billion
Worth of fraud was revealed

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What happened to the
fraudsters?
CEO Bernard Ebbers CFO Scott Sullivan David Myers Arthur Andersen
was sentenced to 25 received a five-year (Director of General withdrew its audit
years in prison. jail sentence after Accounting) opinion for 2001.
pleading guilty and resigned.
testifying against
Ebbers.

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Financial Impact
⬡ The company due to bankruptcy has
$5.7 billion in debt and $6 billion in
cash.
⬡ The newly formed MCI agreed to pay
shareholders and holders $500 million
in cash and $250 million in MCI shares.

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