WorldCom and Satyam

WorldCom and SatyamCritical Cases analysisGroup IntroductionThe Excelsiors

M.Tanzeel-e-rahman Khan13125Zaeem Munawar13118Arslan Khalil13127Sara Zafar13153Riasat Ali13110Abudullah Muzafar13165Abstract2nd largest US telecommunication company WorldCom and Indias fourth-largest information technology company Satyam had reported accounting irregularities.Biggest accounting frauds in their respective countries.WorldCom announced in 2002 that it had resorted to fraudulent accounting practices during 2001 and 2002Misrepresented a staggering amount of US$ 3.8 billion.Similarly on other hand:Founder and chairman of Satyam, Ramalinga Raju confessed of fraud inflating profit and revenue is for several yearsFraud amounted to US$ 1.4 billionSeries of events followed at WorldCom and SatyamA severe cash crunch forcing WorldCom to lay off 17,000 workers, 20% of its global workforce.In July 2002 WorldCom filed for Chapter 11 bankruptcy code

Cont..WorldCom wrote down US$ 82 billion ( over 75%) of its reported assetsWorldCom established a special investigation committeeSatyams fraud revelation only serve to deepen concerns about good corporate governance practices in other companies in India as wellGovernment of India intervened and constituted a new board for the company to reassure Satyams employees and client, raised money for working capital, and appointed new auditors to restate the accounts.On other hand WorldCom terminated the services of some of its top executives including Scott Sullivan, the Chief financial Officer and David Myers, senior vice president and controller.Sullivan was held responsible for accounting mess and he was arrested on charges of fraud and misrepresentation.Similarly on January 12, 2009 Raju was arrested on charges of cheating, breach of trust, criminal conspiracy, falsification of records and forgery and his board was dissolved.2 auditors from PricewaterhouseCoopers were also arrested on January 24, 2009Cont..SEBI subsequently charged Raju and his brother with fabricating bank accounts, diverting Satyams money to fund real estate businesses, and siphoning off money to finance activities of sister concerns and companies run by Rajus family and relatives.In 2003 WorldCom changed its name to MCI and moved its corporate headquarters from Mississippi to Virginia.The company emerged from Chapter 11 bankruptcy in 2004 from then they are intended to pay off various claims and settlements.Satyam was acquired by Tech Mahindra on April 13, 2009From WorldCom and Satyam, it appears that corporate accounting fraud is a major problem that is increasing both in its frequency and severity.

Introduction to WorldComMCIformerly known as WorldCom was anAmerican telecommunicationcorporationcurrently a subsidiary of Verizon CommunicationsWorldCom was theUnited States's second largest long distancetelephone company(after AT&T).formed originally as a result of the merger ofWorldComandMCI Communications corporationsThe company traded onNASDAQas WCOM (pre-bankruptcy) and MCIP (post-bankruptcy)In 2006, the company was purchased by verizoneWorldCom was theUnited States's second largest long distancetelephone company(after AT&T).WorldCom grew largely by acquiring other telecommunications companies, most notablyMCI Communications.It was headquartered inClinton, Mississippi, before being relocated to Virginia.WorldCom started as a small long distance service provider called LDDS in Mississippi in 1983 by Bill Fields.Cont.. In 1985 Burnie Ebbers was appointed CEO of the company, in 1989In 1990s the company and grew rapidly through the acquisition of various companies and expansion of its operations across the world.In 1995, it changed its name to WorldComWithin 1998 to 1994 WorldCom acquired more than a half-dozen communication companiesUntil 1993 the company was the fourth-largest communication company with the revenue of 1.5 billion.In 1999 Sprint and MCI WorldCom announced a merger agreement which was unsuccessful.In 2000 both companies dominated the merger process and MCI WorldCom once again renamed itself to simply WorldComIt remained 2nd largest telecommunication provider in US after AT&T from 1998 to 2002From 1988 to 2002 WorldCom went through 70 Mergers and acquisitions, it purchased 30 companies.Satyam Computer services Inc.Satyam was founded in 1987 as a small computer services provider by Ramalinga Raju and his brother Rama RajuWith 20 employees It was converted into public Ltd. company in 1992 with an IPO oversubscribed by 17 times.During 1990s Satyam got many international projects and they spread the company worldwideIn 1996 the company set up to offices in the US and one in Japan. By 1999 Satyam had a presence in more than 30 countries across the world. By the year 2000 the company had 10,000 employees.And until now Satyam is operating under the name of Mahindra SatyamIt is located in more then 66 countries and has more then 50,000 employeesFraud in WorldComIn 2001, Ebbers persuaded WorldComs board of directors to provide him corporate loans and guarantees in excess of $400 million to cover his margin calls.In April 2002, Ebbers resigned as CEO and was replaced byJohn Sidgmore, formerCEOofUUNETTechnologies, Inc.during mid-1999 and continuing at an accelerated pace through May 2002, by Ebbers (as CEO),Scott Sullivan(CFO), David Myers (Controller) and Buford "Buddy" Yates (Director of General Accounting)They used fraudulent accounting methods to disguise its decreasing earnings to maintain the price of WorldComs stock.The fraud was accomplished primarily in two ways:Booking "line costs" (interconnection expenses with other telecommunication companies) ascapital expenditureson the balance sheet instead ofexpenses.Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts.

ContIn 2002, a small team of internal auditors at WorldCom worked together, often at night and secretly, to investigate and reveal $3.8 billion worth of fraud.Sullivan was dismissed, Myers resigned,Arthur Andersenwithdrew its audit opinion for 2001theU.S. Securities and Exchange Commission(SEC) began an investigationBy the end of 2003, it was estimated that the company's total assets had been inflated by about $11 billion.This made the WorldCom scandal the largest accounting fraud in American history at that time.BankruptcyOn July 21, 2002, WorldCom filed forChapter 11 bankruptcy protectionBy the bankruptcy reorganization agreement, the company paid $750 million to the SEC in cash and stock in the new MCI, which was intended to be paid to wronged investors.ContDecember 16, 2002,Michael Capellasbecame chairman and chief executive officer.On April 14, 2003, WorldCom changed its name toMCIThe SEC and Worldcom concluded a deal in which WorldCom agreed to pay a civil penalty of $2.25 billion.The company emerged fromChapter 11bankruptcy during 2004 with about $5.7 billion in debt and $6 billion in cash.Previousbondholders ended up being paid 35.7 cents on the dollar, in bonds and stock in the new MCI company.Stockholders lost everythingOn February 14, 2005,Verizon Communicationsagreed to acquire MCI for $7.6 billion.On March 15, 2005, Bernard Ebbers was found guiltyall related to the $11 billion accounting scandal.Cont..He was charged 25 years in prisonOther former WorldCom officials charged with criminal penaltiesIncluding Scott Sullivan (CFO)former controller David Myers In March 2005, 16 ofWorldCom's 17 former underwriters reached settlements with the investors.Citigroupsettled for $2.65 billion on May 10, 2004.

Fraud In Satyamoccurred in India in 2009 where chairmanRamalinga Rajuconfessed that the company's accounts had been falsified after the whistle-blowers letter.Ramalinga Rajuresigned on 7 January 2009 and confessed that he had manipulated the accounts by US$1.47-Billion.In February 2009, CBI took over the investigation and filed the charge sheetsPricewaterhouseCooperswas the statutory auditor ofSatyamThe Indian arm of PWC was fined $6 million by the SEC for not following the code of conduct and auditing standardsRamalingam Raju along with 2 other accused of the scandal, had been granted bail from Supreme court on 4 November, 2011Raju is still not yet arrested even after 33 months of his confessionOn 10 January 2009, the Company Law Board dissolved the Satyam Board and appointed a new board for the turnaround of the company.Satyams fell down to very drastic levelsRaju was diverting money into his family owned companies like MAYTAS, he also proposed the unrelated acquisition of Maytas which was unacceaptable for the directors.He had been allegedly withdrawing 200 million indian rupees every month to pay 13,000 non existent employees.Swot analysis of WorldComSWOT analysis of Satyam Work done by othersWorldCom: A Simple Recipe for Cooking the BooksBy Rebekah A. Sheely, Ph.D., CPAWorldCom: The Accounting ScandalBy: Bob LykeLearning from WorldCom: Implications for Fraud Detection through Continuous AssuranceJ. Randel Kuhn, Jr.University of Central FloridaSteve G. SuttonUniversity of Central FloridaCorporate Accounting Fraud: A Case Study of Satyam Computers Limited Madan Lal Bhasin Satyam Fraud: A Case Study of India's EnronVeena L.Brown,Brian E.Daugherty, andJulie S.PersellinTHE ACCOUNTING FRAUD @ WORLDCOM: THE CAUSES, THE CHARACTERISTICS, THE CONSEQUENCES, AND THE LESSONS LEARNEDBy: JAVIRIYAH ASHRAF

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