If you are of a certain age, you will recall the rapid rise and disgraceful fall of a Telco company called Worldcom. They acquired a network of rival carriers, often much bigger thanWorldcom itself, during the wild west growth that built the wireless industry. Canadian, Bernie Ebbers, once considered an extraordinary rainmaker on Wall Street for expanding a tiny Mississippi discount telecom company into Worldcom died yesterday at the age of 78.
He renamed the company WorldCom in 1995 and in 1997, bought CompuServe for $1.2 billion in stock. In 1998, Ebbers paid $37 billion to buy MCI Communications, then the country's second biggest long-distance provider. In 1998, Ebbers brokered a $129 billion takeover for Sprint, the number-three long distance and wireless carrier in the U.S., a deal that was mired in antitrust laws for five years.
By April 2000, WorldCom's extraordinary growth story started to unravel, and Ebbers was fired when it was discovered that he owed more than $400 million to WorldCom, having used company money to acquire a yacht and a cattle ranch in British Columbia.
In 2002, Worldcom announced that its CFO Scott D. Sullivan had been inflating the bottom line to show massive profits with a resulting stock price rise, by secretly reclassifying operating expenses as capital expenditures. An internal audit uncovered that $3.8 billion in expenses had been improperly booked as capital expenditures thus wiping out all profits Enron had recorded. By July of that year, WorldCom filed for bankruptcy protection, wiping out billions of dollars in investments for hundreds of thousands of retail shareholders. With almost $104 billion in assets wiped out, WorldCom's bankruptcy became the biggest in U.S. corporate history - now surpassed only by Lehman Brothers in 2008.
Ebbers' great entrepreneurial success story was mired in fraud and was the catalyst for changes in corporate governance and accounting practices for publicly traded companies. In the 1990s, Worldcom's stock traded above $60 but sank to $0.09 by the time of the bankruptcy. Ebbers was sentenced to 25 years in Federal prison for his role in the fraud. He died at home after a judge permitted an early release due to health reasons.