Oh MAN!!!! First Enron, now Worldcom (1 Viewer)

[Allen W]

How can you miss by 3.8 BILLION DOLLARS! This is no accounting error, it is pure greed for the execs to walk off with millions in stock options. I for one am glad it happened, (certainly not for the employees though) because with several of these in a row it will be hard for them to be swept under the rug. I think some of the executives need to go to jail and have their money taken away from them to fix the problem.

Did you notice how fast Bush is calling for an inquiry into this one? He isn't as buddy buddy with the telecom industry as he is to the oil industry.

I still haven't seen anyone in Enron or Anderson punished for bad or deceptive accounting yet. I have only seen Anderson get busted for shredding documents/destroying evidence. Yes no one wants to do business with them but that is not the same thing as punishment. Am I right?

Up to this point it still looked to me like the Enron execs were going to walk away unscathed. Will it actually get hot enough that some of them go to jail?

 

[Peter Kim]

Allen...what's the regional/local press like down there in Texas? Does Enron still command a lot of attention, or have they been forgotten?

 

[Colin Dunn]

I can't speak for what Allen W. is reading in Dallas, but the Enron story isn't dominating the news in Austin. Usually if I hear anything about Enron, it's some small follow-up story that makes the national news...

 

[Brian Perry]

The more I think about Trace's post, the more I think WCOM was like many of the dot.com companies that crashed, burned, and negatively affected entire industries. While it is unfortunate for 17,000 people to lose their jobs abruptly, you could also argue that they (and the other 63,000 employees) benefitted from the deception by getting paid to work for what really was an enormously unprofitable company that had no right to exist the way it did. In other words, had the true business model and profitability analysis emerged a couple of years ago, it is likely that the 17,000 layoffs would have occurred long ago.

Now, not only is WCOM affected but all of its competitors who have had to compete with an unrealistic pricing model. It's similar to companies like express.com that not only killed themselves but also took out countless independent brick & mortar stores that couldn't survive against internet startups that were selling every product as a loss leader just to gain marketshare. How many phone companies -- who kept honest books -- went under because they couldn't compete against a company that appeared to be very profitable despite losing billions?

 

[Philip_G]

I don't know much about Worldcom, but I do know MCI. I can't help but think about them with a wry sense of..."Be careful what you wish for, you just might get it." It was MCI that pushed for the initial breakup of the Bell System in 1984. They were the biggest cheerleaders of the 1996 telecom bill that de-regulated the industry (although my company also pushed hard as well). They drove down Long Distance rates to the point where profitability is now in question. After the failure of the telecom act, and lousy customer satisfaction, and hidden fees most consumers want the Bell System back together. Ironically, we are paying MUCH more for basic phone service than we ever did under Ma Bell. Strange that they would be one of the first casualties of what they created in the first place.HMMM!

Well, in some respects I agree and some I don't I guess, lets see if I can make sense to anyone but me .
I don't think de-regulation in the end will be bad, but not really good either, you can look to the airline industry for a model, it's been de-regulated a bit longer and is further along in the evolutionary chain of events. I think what is happening (or will happen) we'll see a bunch of newcomers enter the market, the large companies will drive prices to rock bottom and drive the enw comers out of business with their deeper pockets, or buy them out, then in the end we'll see 2 or so large companies left standing, with zero or little competition and prices about as they were in the beginning. You can see this happening in the airline industry, with a few notable exceptions like southwest and jetblue, but with big guys like TWA and eastern (among others) gone or about to be gone/bought up I think we'll be left with just a couple majors carrying the lucrative routes and a bunch of code shares taking the smaller routes that the majors couldn't make profitable. I'm making the assumption that telecom also runs on a very small profit margin, just as airlines do, so the only way to be profitable is to be HUGE.

 

[Allen W]

Enron hasn't been in the news as much in the last few weeks. The Andersen ruling was the last time it was really brought up heavily. Last week a bankruptcy judge cleared the way for them to give out some of the severance packages to the laid off employees. They have now been waiting for it for months.

There is some story about it in the paper nearly on a daily basis. It is not really breaking news or being discussed on the street as much as it was.

MCI/Worldcom has a large office and call center in Dallas. As a technical recruiter, I am sure I will be getting a lot of calls next week.

 

[Travis Hedger]

What I dont understand is how these CEO's get millions for destoying their companies? While the little guy gets a pink slip, and is very lucky to get ANY serverance pay.
I worked @ PSINet and got laid off almost a year ago. The CEO who founded the company burned thru 1 Billion in cash in 3 months. While he stepped down from CEO status he got $3 million to do so. We people in the OKC branch got a measly month of severance, and we had to kick and scream for it. This I will never understand.

 

[Trace Downing]

Philip;
I'm just a technician for a telecom, so I may have my facts a little twisted, but a public relations exec would pull the blinders over your eyes. So let's see if I can make sense here...
Profitability depends on the service. Business markets are the most profitable clients for a telecom. For my company (which you will figure out by the end of my speil) it and the owned network generate 60% of the revenue. Consumer markets, make little, if any profit, since the majority of consumers make 0-5 minutes of LD a month, at an average of 5-7 cents a minute. Yet we still pay the LECs a fee for inclusion on their bill. (A LEC is a Local Excange Company, such as Verizon, Ameritech, and Qwest). Growth businesses are wireless and broadband. Both of these take about 40% of the company's revenue, because of deployment of the new technologies. They also bring in revenue, but that's quickly eaten up by expansion, and infrastructure deployment.
Once these two cable companys were bought by us, and merged, that's when the broadband push went full speed. Cable TV was once only one way communication, redundancies had to be put into place for phone service to work properly. We couldn't have a day long cable outage, and not have phone service either, so we had to build a backup, or second connection to every BB phone user. Then digital TV played a part. But for all the expansion, ****B***band still needs to do upgrades one more time for ATSC signals.
Telecom is enormously profitable. The trouble comes when theres too much competition, driving down prices to the point of communications becoming nothing more than a commodity, and creating too much infrastructure for the market to absorb. Then there's de-regulation. Now there are a few big LD companies, and 4 LECs...all essentially monopolies in their own territories, only this time without regulation.
Ever wonder why you're local phone bill always went up, while you're LD rates went down? Under the old Bell System, Long distance rates subsidized local phone service, otherwise Ma Bell wouldn't have the money to wire sparsely populated reigions like North Dakota and Wyoming. Once the system was broken up, the LECs had no external revenue, except for the 3-6 cent a minute royalty LD companies pay to connect to the LEC's network for the "last mile" into the call's destination. Remember my 7-10 cent LD rate comment? Well, there's what MCI is stuck with after the dust settles. What followed were phone company layoffs, bad bill management, aggressive sales tactics, poor customer service, and downsizing to the point where reliability in the network is now in jeopardy.
Phone companies talk about the quality and reliability of their fiber optic lines, that you can hear a pin drop, or hear you're true voice, but believe me...This equipment needs a lot of tender loving care or it will break, and cascade to other parts of the network.
Oh' yeah...True Voice never worked.

 

[Brian Harnish]

Travis Hedger wrote:

I worked @ PSINet and got laid off almost a year ago. The CEO who founded the company burned thru 1 Billion in cash in 3 months. While he stepped down from CEO status he got $3 million to do so. We people in the OKC branch got a measly month of severance, and we had to kick and scream for it. This I will never understand.

I'm sorry that you had to suffer through that. It's not fun. While I haven't had the pain of suffering through a layoff yet, I don't plan on having something like that occur to me soon. My plan is to begin my investments and hopefully by the time I'm thirty I'll be able to retire and enjoy the richness and benefits of a healthy financial life.
Anyways, as I said before, it's because of leverage that the big guys make a lot of money and the little guys get the sharp end of the stick. I would encourage you to read Rich Dad Poor Dad and Retire Young, Retire Rich. Both are by Robert Kiyosaki. They may help you out in your understanding of financial leverage and why and how leverage is used by some people to get rich and retire early. I really enjoyed those books (I have many of Kiyosaki's works in my library) and they have made a significant change in my mindset for the better.
It is unfortunate that these few CEOs have ruined an enterprise like this. I can't imagine how the owners of the company itself must feel by seeing their company go down in flames. I hope I don't end up having to see one of my own companies do that in my lifetime. But if that's what it takes to get me on the road to financial freedom, then I'll take it.
Sorry for ranting, but I just wanted to let those that feel all big guys are bad that not *ALL* of the big guys are bad. If they were then they would not be supplying jobs to the many individuals in the community, would they? I hope the CEO that I read about falsifying earnings to earn a buck really does get punished. Although, perhaps the punishment of lost integrity is enough. Once they run out of money, many investors won't want to work with the guy because of his past actions to falsify earnings.

 

[LewB]

In most cases I must agree. I've often said that if Ben Franklin were around today he'd tell us to pick up the muskets again because this is taxation without representation.
The only way that workers can get the ear of the politicians is to organize, and I'm not talking about a labor union. Look at the AARP, they wield a lot of clout because they represent a bunch of people who VOTE!
I think an organization representing those laid off as a result of these crimes could get some action. Tell the President that if those responsible for these crimes are not on trial by the next election, the whole block they represent will vote en masse for any other candidate. Depending on the states most affected by this it might work.

 

[Joseph S]

What amazes me is that some companies can lie to investors and others can't. Some Enron and WorldCom execs will heavy fines if not some Club Fed time as they should. Yet, Microsoft cooked their books and didn't even receive a minimal punitive fine or have to readjust prior statements. Lying to investors should not be tolerated under any circumstances. These sorts of mixed signals give CEOs a free avenue to try all sorts of tricks to get the biggest overall boost in stock prices and sales.
http://zdnet.com.com/2100-1104-930896.html
This same is true of the FCC and their pathetic policy of accepting from companies an excuse of a lawsuit as a means to postpone HDTV service. The company proposes an antenna the size of a skyscraper, knowing full well that it won't be allowed by local gov and then FCC holds the application process and the company recieves time(possibly years) over the 12 months of maximal extension of license. Quit allowing these companies to commit fraud again their investors, the public, and our government!!!!!!

 

[Brian Perry]

Microsoft cooked their books

Yes, but the difference is that they underestimated income, which is probably not considered as bad (unless you're the IRS). Actually, when you mentioned MSFT, I thought you were referring to their difficulty in calculating the value of stock options they had awarded to employees. I think at one point the options were a huge liability based on the stock price, but I don't think it's an issue anymore.

 

[ToddMS]

Although i have not read "Rich Dad,Poor Dad", check out this critique..pretty informative. As for "making the CEOs PAY"..what have they done that was illegal? I don';t think anyone has a right to make them make amends for their actions. I might not have all the facts, but while they appear not to have done what is in the best interests of all the employeeys, I doubt many would have done differently in the same situation.

 

[Joseph S]

Yes, but the difference is that they underestimated income, which is probably not considered as bad (unless you're the IRS).

Correct, which is why they shouldn't be drawn and quartered for this. I just think letting them off with no fine is sending the 30 rotating CEOs a bad message because you can underestimate income, profits, etc and easily mislead people for company gain.
Next we'll see cases where a company's stock is at five bucks report so they report a $2 billion loss. Then the next quarter give a $1.9 billion dollar gain and receive a glowing report on CNBC. They lose $50million a quarter and get their stock to go $5->2->10.
It can also be used to hide boatloads of wealth while crying "our software is priced in line with expenses" at Antitrust hearings.

 

[Rob Gillespie]

And now it looks like Xerox is on shakey ground also.

 

[Stevan Lay]

Just read the Xerox situation. First Arthur Andersen, now KPMG, the third largest accounting firm under investigation - the same KPMG that WorldCom had switched to from Andersen.

 

[Michael Reuben]

KPMG, the third largest accounting firm under investigation

Do you have a link or a cite? I haven't seen anything to indicate that KPMG is under investigation. They just issued a statement defending their work for Xerox.

There isn't a single major accounting firm that hasn't been on the receiving end of something like this. That includes PriceWaterhouseCoopers, which replaced KPMG as Xerox's auditors.

M.

 

[SteveA]

Perhaps it's time to do away with our capitalistic system and embrace Marxism!
KIDDING!

 

[PatrickM]

There isn't a single major accounting firm that hasn't been on the receiving end of something like this. That includes PriceWaterhouseCoopers, which replaced KPMG as Xerox's auditors.

Lets face it, AA is the one that got caught. It wasn't just a case of one rogue partner as we've seen. We know the other big firms out there have done varying degrees of the same thing but just haven't gotten caught yet.

How can an auditing firm give a truly independent assessment of a company that pays them to do the audit?

My friend, who was an auditor, said the courts have previously said that auditors are watchdogs not bloodhounds. If you wanted them to sniff out fraud you'd need two to three times more auditors and you'd need some permanently based at the company.

Patrick

 

[Stevan Lay]

Michael Reuben wrote:

Former Xerox Chairman Paul Allaire and former Chief Financial Officer Barry Romeril may be among the executives under investigation, analysts said. KPMG LLP, Xerox's auditor, also has been under investigation, its chief executive, Eugene O'Kelly, has said.
KPMG was fired in September after it delayed signing Xerox's most recent annual report because of accounting questions. O'Kelly has said he told SEC Chairman Harvey Pitt at an April meeting that he will contest any charges that might be filed. Pitt denied that any discussion of the Xerox-KPMG case occurred at the meeting.