Long Distance Discount Services ( Ldds ) - 1460 Words

1. Introduction Worldcom Group, formally known as Long Distance Discount Services (LDDS) and the second largest long distance telecommunications provider in the U.S., was involved in one of the biggest accounting frauds in history. The scandal, when unearthed in 2002, revealed that Worldcom had overstated it’s earnings in the five quarters between 2001 and 2002 by more than 3.8 billion. This was a result of inappropriate accrual releases and classifying periodic line costs as capital expenditures rather than treating them as operating expenses (Lyke and Jickling 2002). This report examines and analyses the underlying reasons behind how and why such a massive fraud took place, how it went unnoticed through the years and the actions taken†¦show more content†¦However, evidence has also been found of managers trying to influence analysts’ expectations downwards (Degeorge et al 1999). According to Burgstahler and Dichev (1997), when earnings increases are consistent firms’ price-to-earnings are normally higher but when the trend is broken firms experience a negative growth in stock returns. 2.1.2 Compensation agreements and Equity incentives Since the last couple of decades, it has become very common for companies to link CEO and executive pay to the stock prices of the firms. Companies try and use this strategy in order to align the incentives of senior management with shareholder interests. But, it has been found that this strategy might backlash and instead motivate managers to practice fraudulent methods in order to manage and increase the company’s reported earnings (Bergstresser and Philippon 2006). 3. Earnings Management at Worldcom (Q1B) Worldcom CEO Bernie Ebbers was instrumental in merging 75 companies with Worldcom including telecommunication giant MCI. But in reality, Worldcom was struggling to make these acquisitions work while it continued to pursue growth by trying to acquire more companies (Zekany et al 2004). In addition to this, there was increasing pressure to maintain the E/R ratio at 42% and this ratio was difficult to maintain as the industry was facing slow growth due to competition, excess capacity and reduced demand (Kiron and Kaplan 2004). Therefore, seniorShow MoreRelatedWorldcom : Case Analysis : Worldcom1193 Words   |  5 PagesFraud: Used fraudulent accounting methods to disguise its decreasing earnings to maintain the price of WorldCom’s stock. WorldCom began as small long distance telephone provider in 1983. Based in Jackson, Mississippi; the company provided long distance discount services to its consumers and operated by the name LDDS—Long Distance Discount Services, Inc.—In 1985 Bernard Ebbers became the CEO of the company, and would continue to be the company’s CEO up to the failing of the company on April 2002Read MoreWhy The Ceo Bernard Ebbers And The Cfo Scott Sullivan Committed Financial Statement Fraud1783 Words   |  8 Pagesas â€Å"Long Distance Telephone provider called Long Distance Discount Services, Inc. (later part of a holding company called LDDS Communications, Inc.). LDDS became a public company in 1989 through a merger with Advantage Companies, Inc.†(Report of Investigations). LDDS competed with major long distance carriers such as ATT, MCI, and Sprint; they grew steadily â€Å"purchasing small long distance companies throughout the early 1990s†(Report of Investiga tions). Between the years of 1991 and 1993 LDDS â€Å"acquiredRead MoreManagement Theories And Ethical Theories2085 Words   |  9 Pagesbusinessmen created a small telecommunication company called, Long Distance Discount Service which would later turn into the telecommunication giant known as WorldCom. In the beginning Long Distance Discount Service was backed by an investor named Bernie Ebbers. Bernie Ebbers was a gym teacher that would later make his way to be a hotel manager, he would later become the CEO of LDDS after the company was experiencing issues retaining cash. In 1989, LDDS would hit the stock market after acquiring AdvantageRead MoreBernard Ebbers And The Grand Success Of Worldcom1608 Words   |  7 PagesBernard Ebbers is an Ex former chief executive, and the co-founder of WorldCom. WorldCom was the second largest long distance phone company in the United States now known as MCI, because of the tremendous scandal that led to the company’s bankruptcy (Crawf ord, 2005). With the grand success of WorldCom, Bernard Ebbers became one of the most powerful American businessman ever to face a criminal trial. In 2005, Ebbers was found guilty of securities fraud, conspiracy, and filing false documents withRead MoreUnethical Business Practice-a Case Study of the Downfall of Two Major Companies2606 Words   |  11 Pagesfrom regulation as a utility company. The deal-driven atmosphere at Enron was the primary cause of its downfall. The focus was on quarterly earnings and this put pressure on employees to do deals with no regard as to how they would be managed. As long as they ‘made the quarter’ they wouldn’t be yanked. Unethical Business Practices 5 Employees’ compensation was also based on deals done and profits recorded in the previous quarter. The focus on earnings rather than cash led to a lot of unwiseRead MoreVerizon Wireless1280 Words   |  6 PagesDevon Daniel Verizon Verizon stars with WorldCom in 1983 when Murray Waldron and William Rector came together to sketch out a plan create a long-distance telephone service. Long Distance Discount service, became their new company that began operating as a long-distance reseller in 1984. The new company grew quickly in the next fifteen years, over time it change to WorldCom. The company became one of the largest telecommunications corporations in the world. They also became the largest bankruptcyRead MoreMission, Vision, Values, And Core Competencies Of Worldcom Inc. Essay1031 Words   |  5 Pageswill compare, identify, and examine the statements, core competencies, and strategic goals including current behavior and business goals aligned with its mission, vision, values, and core competencies of WorldCom Inc. Organization LDDS (Long Distance Discount Service) acquired a voice and data transmission company in 1995 and named it WorldCom Inc. Within four years of being in business, WorldCom Inc. completed three successful mergers with MCI, Brooks Fiber Properties, CompuServe Corp and the mergerRead MoreEssay about Worldcom: Organizational Culture and Unethical Safeguards1195 Words   |  5 Pagesinvestors of Long Distance Discount Services (LDDS) whom was appointed to run the fourth-largest long-distance telecommunications company, and after a shareholder vote in 1995, become WorldCom. â€Å"While he lacked technology experience, Ebbers later joked that his most useful qualifications was being ‘the meanest SOB they could find,’ [he] took less than a year to make the company profitable† (Kaplan Kiron, 2007, p. 2). As a result of the Telecommunications Act of 1996 permitting long-distance carriersRead MoreAccounting Fraud at Worldcom 21405 Words   |  6 PagesAccounting Fraud at WorldCom Vanessa Gail Woods Strayer University Connor-Green/ACC 576 March 21, 2010 Accounting Fraud at WorldCom The break up of ATT opened the long distance service market to small companies during the mid- to late-1980s and 1990s. Long Distance Discount Service (LDDS) opened in 1983 with moderate growth until its stock went public in 1989. CEO Bernie Ebbers decided to grow the organization through acquisitions (70 companies over the course of its lifetime)Read MoreAccounting Fraud And The Financial Fraud1761 Words   |  8 PagesIntroduction WorldCom CEO Bernard Ebbers, former partner said â€Å"He didn’t know anything about the long distance or telephone business, but he knew how to read numbers, he was a number cruncher.†(â€Å"Inside†) This should have been a warning sign to those investing in the company that Ebbers wasn’t the best choice to run the 2nd biggest telecom company in America. WorldCom was just one of many accounting frauds that took place in the early 2000’s. But unfortunately that trend of dishonest accounting didn’t