The Second Shock Wave of Enron on US Economy

It was disclosed that WorldCom, the second biggest long-distance telecom company in US, had involved in forging of the biggest accounting in US history. The scandal shocked US economy as much as Enron Corp. did.

According to the internal auditing team, the company forged accounting of 3.85 billion dollars for 5 quarters from the first quarters of last year to the first quarters of this year. The amount of the window-dressing of Enron Corp. was only 591 million dollars and the company was placed under the legal management.

WorldCom has pursued internal restructuring after Mr. Bernard Ebbers resigned in April who had working for long time as the CEO.

WorldCom forged by transacting the maintenance expenses for networks equipment as capital expenditure, and forged cash flow chart. By the methods, the company reported the management of profits with 1.4 billion dollars in year 2001, and profits with 130 million dollars in the first quarters in this year. The report was totally false and the company was damaged very seriously in finance. Well, it was Arthur & Anderson again! Arthur & Anderson was the corporate that audited the accounting of Enron Corp. and Global Cross. And it audited World Com this time.

The main reason for the shock on the US economy is that the company forged the cash flow chart. It has been known that the forging cash flow chart was impossible. The chart was introduced in 1950s to prevent from business’s window-dressing and has been known as one of most reliable information since then.

Recently Dynergy, Adelphia, WorldCom and others reported as reserving sufficient cash. It causes the endless collapse of the reliability of US business.

Pre-CEO of WorldCom, Mr. Everse began his business at small sized scale. However, through continual merging and acquisition, he brought up the company as a super-sized telecommunication company and the market value of the company was 115.3 billion dollars with 62 dollars per share once. Unfortunately, as the company was known having debts of 30 billion and being of the subject of restructuring last month, the CEO resigned.

During the period, Mr. Ebbers borrowed 366 million dollars from the company to prevent his financial damage from the stock investment. The Wall Street was astonished by the fact.

New York Times and The Times of UK reported that the share of WorldCom dropped to 26cents in the floor at 25th and estimated to apply legal management soon. WorldCom is a long-distance telecom service company with 20 million members and 80 thousand employees for data communication service.

Eun-Taek Hong euntack@donga.com