MCI Inc. 59695 219420047 2008-06-15T03:39:20Z Speer320 6572843 /* See also */ {{This|LDDS, which later changed its name to WorldCom and purchased [[MCI Communications]].|MCI}} [[Image:Mci logo.png|thumb|right|MCI logo]] '''MCI, Inc.''' was an [[United States|American]] [[telecommunications]] company that was headquartered in [[Ashburn, Virginia]]. The corporation was the result of the merger of '''WorldCom''' (formerly known as '''LDDS''' followed by '''LDDS WorldCom''') and [[MCI Communications]], and used the name '''MCI WorldCom''' followed by '''WorldCom''' before taking its final name on [[April 14]], [[2003]] as part of the corporation's emergence from bankruptcy. The company formerly traded on NASDAQ under the symbols "WCOM" (pre-bankruptcy) and "MCIP" (post-bankruptcy). The corporation was purchased by [[Verizon Communications]] with the deal closing on [[January 6]], [[2006]], and is now identified as that company's '''Verizon Business''' division with the local residential divisions slowly integrated into local Verizon subsidiaries. MCI's history, combined with the histories of companies it has acquired, echoes most of the trends that have swept American telecommunications in the past half-century: It was instrumental in pushing legal and regulatory changes that led to the breakup of the [[AT&T]] monopoly that dominated American telephony; its purchase by WorldCom and subsequent bankruptcy in the face of accounting scandals was symptomatic of the Internet excesses of the late 1990s. It accepted a proposed purchase by [[Verizon]] for US$7.6 billion. For a time, '''WorldCom''' (WCOM) was the [[United States]]' second largest long distance [[phone company]] ([[AT&T]] was the largest). WorldCom grew largely by acquiring other telecommunications companies, most notably [[MCI Communications]]. It also owned the [[Tier 1 ISP]] [[UUNET]], a major part of the [[Internet backbone]]. It was based in [[Clinton, Mississippi]] before moving to Ashburn, Virginia. == History == === Corporate founding === '''Long Distance Discount Services''', Inc. (LDDS) began in [[Hattiesburg, Mississippi]] in [[1983]]. In [[1985]] LDDS selected [[Bernard Ebbers]] to be its [[CEO]]. The company went public in August [[1989]] when it merged with Advantage Companies Inc. The company name was changed to '''LDDS WorldCom''' in [[1995]], and later just '''WorldCom'''. The company’s growth under [[WorldCom]] was fueled primarily through acquisitions during the 1990s and reached its apex with the acquisition of MCI in 1998. Among the companies that were bought or merged with WorldCom were Advanced Communications Corp. ([[1992]]), [[Metromedia]] Communication Corp.([[1993]]), Reurgens Communications Group(1993), IDB Communications Group, Inc ([[1994]]), Williams Technology Group, Inc. ([[1995]]), and MFS Communications Company ([[1996]]). The acquisition of MFS included [[UUNET|UUNet Technologies, Inc.]], which had been acquired by MFS shortly before the merger with WorldCom. In February [[1998]], a complex transaction saw WorldCom purchase online pioneer [[CompuServe]] from its parent company [[H&R Block]]. WorldCom then retained the CompuServe Network Services Division, sold its online service to [[America Online]], and received AOL's network division, ANS. The acquisition of [[Digex]] (DIGX) in June 2001 was also complex; Worldcom acquired Digex's corporate parent, Intermedia Communications, and then sold all of Intermedia's non-Digex assets to Allegiance Telecom. === MCI acquisition === [[Image:Mci-Worldcom logo.GIF|thumb|280px|right|MCI WorldCom logo (Used from 1998–2000)]] On [[November 10]], [[1997]], WorldCom and [[MCI Communications]] announced their US$37 billion merger to form MCI WorldCom, making it the largest merger in US history. On [[September 15]], [[1998]] the new company, '''MCI WorldCom''', opened for business. === Sprint merger === [[Image:Worldcom-logo.gif|thumb|280px|right|WorldCom logo (Used from 2000–2003)]] On [[October 5]], [[1999]] [[Sprint Corporation]] and MCI WorldCom announced a $129 billion merger agreement between the two companies. Had the deal been completed, it would have been the largest corporate merger in history, ultimately putting WorldCom ahead of [[AT&T]] as the largest communications company in the [[United States]]. However the deal did not go through because of pressure from the [[US Department of Justice]] and the [[EU]] on concerns of it creating a monopoly. On [[July 13]], [[2000]], the Board of Directors of both companies acted to terminate the merger. Later, in [[2000]], MCI WorldCom renamed itself 'WorldCom' without [[Sprint Corporation|Sprint]] being part of the company. === Accounting scandals === [[Bernard Ebbers]] became very wealthy from the rising price of his holdings in WorldCom’s stock.[http://www.sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.htm] However, shortly after the MCI acquisition in 1998, the telecommunications industry entered a downturn and WorldCom’s growth strategy suffered a serious blow when it was forced to abandon its proposed merger with Sprint in late 2000. By that time, WorldCom’s stock was declining and Ebbers came under increasing pressure from banks to cover [[Margin (finance)#Margin call|margin calls]] on his WorldCom stock that was used to finance his other businesses (timber and yachting, among others).[http://www.sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.htm] During 2001, Ebbers persuaded WorldCom’s board of directors to provide him corporate loans and guarantees in excess of $400 million to cover his margin calls.[http://www.sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.htm] The board hoped that the loans would avert the need for Ebbers to sell substantial amounts of his WorldCom stock, as his doing so would put further downward pressure in the stock's price. However, this strategy ultimately failed and Ebbers was ousted as CEO in April 2002 and replaced by [[John W. Sidgmore|John Sidgmore]], former [[CEO]] of [[UUNET|UUNet Technologies, Inc.]] Beginning in 1999 and continuing through May 2002, the company (under the direction of [[Scott Sullivan (executive)|Scott Sullivan]] (CFO), David Myers ([[Controller#Organisational Control|Controller]]) and Buford “Buddy” Yates (Director of General Accounting) used fraudulent accounting methods to mask its declining earnings by painting a false picture of financial growth and profitability to prop up the price of WorldCom’s stock.[http://www.sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.htm] The fraud was accomplished primarily in two ways: #Underreporting ‘line costs’ (interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them. #Inflating revenues with bogus accounting entries from ‘corporate unallocated revenue accounts’. [[Eugene Morse (accountant)|Eugene Morse]], an [[Internal audit|internal auditor]] at WorldCom reporting to [[Cynthia Cooper (accountant)|Cynthia N. Cooper]], uncovered approximately $3.8 billion of the fraud in June 2002 during an examination of capital expenditures.<ref>{{cite web | title= OPINION & ORDER in re: WORLDCOM, INC. SECURITIES LITIGATION 02 Civ. 3288 (DLC) Denise Cote, United States District Judge| url=http://www.worldcomlitigation.com/courtdox/2005-09-21CoteOpApprovSetts.pdf | accessmonthday=May 06 | accessyear=2008 }}</ref>. Cynthia Cooper subsequently alerted the company’s new auditors, [[KPMG]] (who had replaced [[Arthur Andersen]], WorldCom’s external auditors during the fraud) and the chairman of the audit committee, and she has been widely credited as having uncovered the fraud at Worldcom. Shortly thereafter, the company’s audit committee and board of directors were notified of the fraud and acted swiftly: Sullivan was fired, Myers resigned, Arthur Andersen withdrew its audit opinion for 2001, and the [[U.S. Securities and Exchange Commission]] (SEC) launched an investigation into these matters on [[June 26]], [[2002]] (see [[accounting scandals]]). By the end of [[2003]], it was estimated that the company's total assets had been inflated by around $11 billion. [http://www.sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.htm] === Bankruptcy === On [[July 21]] [[2002]], WorldCom filed for [[Chapter 11 bankruptcy protection]] in the largest such filing in [[United States]] history. WorldCom changed its name to '''MCI''', and moved the corporate headquarters from [[Clinton, Mississippi]] to [[Dulles, Virginia]], on [[April 14]], [[2003]]. Under 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. In May 2003, the company was given a [[no-bid contract]] by the [[United States Department of Defense]] to build a [[cellular telephone]] network in [[Iraq]]. The deal has been criticized by competitors and others who cite the company's lack of experience in the area. === Post-bankruptcy === [[Image:Bernard Ebbers.jpg|120px|thumb|right|[[Bernard Ebbers]]]] The company emerged from [[Chapter 11]] bankruptcy in [[2004]] with about $5.7 billion in debt and $6 billion in cash. About half of the cash was intended to pay various claims and settlements. Previous [[Bond (finance)|bondholders]] ended up being paid 35.7 cents on the dollar, in bonds and stock in the new MCI company. The previous stockholders' [[stock]] was valueless. It has yet to pay many of its creditors, who have waited for two years for a portion of the money owed. Many of the small creditors include former employees, primarily those who were laid off in June 2002 and whose severance and benefits were withheld when WCOM filed for bankruptcy. On [[August 7]], [[2002]], the ''exWorldCom 5100'' group was launched. It was composed of former WorldCom employees with a common goal of seeking full payment of severance pay and benefits based on the WorldCom Severance Plan. The '5100' stands for the number of WorldCom employees laid off on [[June 28]] [[2002]] before WorldCom filed for bankruptcy.[http://www.worldcomnews.com/] On [[February 14]], [[2005]], [[Verizon Communications]] agreed to acquire MCI for $7.6 billion. On [[March 15]], [[2005]] [[Bernard Ebbers]] was found guilty of all charges and convicted of fraud, conspiracy and filing false documents with regulators — all related to the $11 billion accounting scandal at the telecommunications company he founded. He was sentenced to 25 years in prison. Other former WorldCom officials charged with criminal penalties in relation to the company's financial misstatements include former [[CFO]] [[Scott Sullivan]] (entered a guilty plea on [[March 2]], [[2004]] to one count each of securities fraud, conspiracy to commit securities fraud, and filing false statements [http://money.cnn.com/2004/03/02/technology/ebbers/]), former [[Controller#Organisational Control|controller]] David Myers (pleaded guilty to securities fraud, conspiracy to commit securities fraud, and filing false statements on [[September 27]], [[2002]] [http://www.accountancyage.com/news/it/1135463]), former accounting [[Board of directors|director]] Buford Yates (pleaded guilty to conspiracy and fraud charges on [[October 7]], [[2002]] [http://www.usatoday.com/money/industries/telecom/2002-10-07-yates-plea_x.htm]), and former accounting managers Betty Vinson and Troy Normand (both pleading guilty to conspiracy and securities fraud on [[October 10]], [[2002]] [http://www.cbsnews.com/stories/2002/11/05/national/main528148.shtml]). On [[July 13]], [[2005]] Bernard Ebbers received a sentence that would keep him in prison for 25 years. At time of sentencing, Ebbers was 63 years old. On September 26, 2006, Ebbers self-surrendered to the [[Bureau of Prisons]] facility at Oakdale, Louisiana, the Oakdale Federal Corrections Institution ("Oakdale FCI") to begin serving his sentence. This prison facility is 35 miles south of Alexandria, LA, and 58 miles north of Lake Charles, LA. His projected release date is July 4, 2028. In March 2005, 16 of [[WorldCom]]'s 17 former underwriters reached settlements with the investors ([http://quote.bloomberg.com/apps/news?pid=10000103&sid=auybDoZIEQTg&refer=news_index]). [[Citigroup]] settled for $2.65 billion on May 10, 2004 ([http://www.citigroup.com/citigroup/press/2004/040510a.htm]). In December 2005, Microsoft announced that MCI will join them by providing [[Windows Live Messenger]] customers [[voip]] service to make calls around the world. This was MCI's last totally new product called "MCI Web Calling". After the merge, this product was renamed "Verizon Web Calling". == See also == * [[Corporate scandal]] * [[Corporate governance]] * [[Vivien v. Worldcom]] == References == *{{cite book | author=Cynthia Cooper | title=Extraordinary Circumstances: The Journey of a Corporate Whistleblower | publisher=Wiley | year=2008 | id=ISBN 978-0-470-12429-1}} *{{cite book | author=Lynne W. Jeter | title=Disconnected: Deceit and Betrayal at WorldCom | publisher=Wiley | year=2003 | id=ISBN 0-471-42997-X}} *{{cite book | author=Om Malik | title=Broadbandits | publisher=Wiley | year=2003 | id=ISBN 0-471-43405-1}} *[http://news.corporate.findlaw.com/hdocs/docs/worldcom/thornburgh1strpt.pdf ''First Interim Report of Dick Thornburgh, Bankruptcy Court Examiner''], [http://sbny.uscourts.gov United States Bankruptcy Court for the Southern District of New York], ''In re WorldCom, Inc.'', Case No. 02-15533 (AJG) (November 4, 2002) Retrieved [[2008-05-02]] *{{cite web |url=http://www.referenceforbusiness.com/history2/43/LDDS-Metro-Communications-Inc.html |title=LDDS-Metro Communications, Inc. - Company Profile, Information, Business Description, History, Background Information on LDDS-Metro Communications, Inc. |accessdate=2008-05-02 |date=2007 |publisher=Advameg, Inc.}} == Citations == {{cite web |url=http://www.sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.htm |title=Report of Investigation by The Special Investigative Committee of the Board of Directors fo Worldcom, Inc. |publisher= SEC|accessdate=2008-01-04 }} <references/> ==External links== *[http://www.verizonbusiness.com/ Verizon Business corporate website] *[http://www.mci.com/ MCI website, mostly redirects to Verizon] ===Credit risk=== *[http://www.moodyskmv.com/research/UAL.html Moody's KMV Default Case Studies] ===Third party=== *[http://denver.bizjournals.com/denver/stories/2005/04/04/daily55.html MCI Investor Starts Petition - Denver Business Journal / mcipetition.com ] *[http://www.worldcomlitigation.com WorldCom Securities Litigation - Official WorldCom class action suit / settlement update site] *[http://www.HavenWorks.com/business/research/worldcom HavenWorks' WorldCom News] *[http://www.forbes.com/home/2002/06/26/0626topnews.html Forbes article on WorldCom scandal] *[http://news.bbc.co.uk/hi/english/business/newsid_2143000/2143217.stm BBC News - WorldCom files for bankruptcy] *[http://www.nytimes.com/2003/02/27/business/27TELE.html Analyst Coached WorldCom Chief on His Script], ''The New York Times'', February 27, 2003 *[http://www.cfo.com/article/1,5309,13378%7C%7CT%7C1161,00.html?f=TodayInFinance_Inside ''CFO'' Magazine, April 21, 2004, "MCI Emerges from Bankruptcy"] *[http://money.cnn.com/2005/07/13/news/newsmakers/ebbers_sentence/index.htm?cnn=yes cnn.com 07-13-2005 "Ebbers gets 25 years"] *[http://www.bankruptcydata.com/Research/15_Largest.htm Largest US Corporate Bankruptcies (1980-present)] *[http://www.cybertelecom.org/industry/wcom.htm Cybertelecom :: MCI / WCOM Regulatory History] *[http://denver.bizjournals.com/denver/stories/2005/05/02/daily1.html?page=2 Qwest Withdraws from Bidding - Denver Business Journal / MCIpetition.com ] {{Verizon}} {{Corporate collapses}} [[Category:Companies established in 1983]] [[Category:2006 disestablishments]] [[Category:Corporate scandals]] [[Category:Defunct telecommunications companies of the United States]] [[Category:Verizon]] [[Category:Corporate crime]] [[Category:Companies based in Mississippi]] [[Category:Hinds County, Mississippi]] [[Category:Companies based in Maryland]] [[Category:Loudoun County, Virginia]] [[de:MCI Worldcom]] [[es:WorldCom]] [[fr:WorldCom]] [[id:MCI]] [[nl:WorldCom]] [[ja:MCI (電気通信事業者)]] [[no:MCI Inc.]] [[zh:世通公司]]