MCI Inc.

MCI, Inc. (d/b/a Verizon Business) was an American telecommunication corporation, and is currently a subsidiary of Verizon Communications, with its main office in Ashburn, Virginia. The corporation was formed originally as a result of the merger of WorldCom and MCI Communications corporations, and used the name MCI WorldCom, succeeded by WorldCom, before changing its name to the present version on April 12, 2003, as part of the corporation's ending of its bankruptcy status. The company traded on NASDAQ as WCOM (pre-bankruptcy) and MCIP (post-bankruptcy). The corporation was purchased by Verizon Communications with the deal finalizing on January 6, 2006,[1] and is now identified as that company's Verizon Business division with the local residential divisions being integrated slowly into local Verizon subsidiaries.

MCI Inc.
Verizon Enterprise Solutions
Verizon Business
FateAcquired by Verizon Communications in 2006
HeadquartersAshburn, Virginia, U.S.
Key people
Francis J. Shammo, President
Kerry T. Bailey, Senior Vice President—Global Services
Rommel Santos, CFO
ProductsConferencing, Contact Centers, Data and IP Services, Internet access, IT Solutions and Hosting, Managed Networks, Premises Equipment (CPE), Security, Voice, VoIP, Wireless
RevenueUS$20.6 billion (2005)
Number of employees
ParentVerizon Communications (2006–present)
WebsiteVerizon Enterprise Solutions

For a time, WorldCom was the United States's second largest long distance telephone company (after AT&T). WorldCom grew largely by acquiring other telecommunications companies, most notably MCI Communications in 1998. In 1996, it acquired UUNET, a Tier 1 ISP that forms a major part of the Internet backbone.[2] It was originally headquartered in Clinton, Mississippi before relocating to Ashburn, Virginia.[3][4]


Corporate founding

The company began as Long Distance Discount Service, Inc. (LDDS) during 1983, based in Jackson, Mississippi. In 1985, LDDS selected Bernard Ebbers to be its CEO. The company became traded publicly as a corporation in 1989 as a result of a merger with Advantage Companies Inc. The company name was changed to LDDS WorldCom in 1995, and relocated to Clinton, Mississippi.

The company grew rapidly in the 1990s, after completing a number of acquisitions and mergers. This began with Worldcom’s first major acquisition in 1992. The breakthrough deal was a $720 million deal for acquisition of the Advanced Telecommunications Corporation. They fought off competition from larger rivals Sprint and AT&T to secure the deal, making Worldcom a larger player in the telecoms market.[5] Other deals included, Metromedia Communication Corp. (1993), Resurgens Communications Group (1993), IDB Communications Group, Inc (1994), Williams Technology Group, Inc. (1995), and MFS Communications Company (1996), and MCI in 1998. The acquisition of MFS included UUNET Technologies, Inc., which had been acquired by MFS shortly before the merger with WorldCom. In February 1998, WorldCom purchased—by a complex transaction—online pioneer company 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) during 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

On November 4, 1997, WorldCom and MCI Communications announced their US$37 billion merger to form MCI WorldCom, making it the largest corporate merger in U.S. history. On September 15, 1998, the new company, MCI WorldCom, opened for business, after MCI divested itself of its successful "internetMCI" business to gain approval from the U.S. Department of Justice.[6]

Proposed Sprint merger

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. The merged company would have surpassed AT&T as the largest communications company in the United States. However, the deal floundered due to opposition from the U.S. Department of Justice and the European Union on concerns that it would create a monopoly. On July 13, 2000, the boards of directors of both companies terminated the merger. Later that year, MCI WorldCom renamed itself "WorldCom".[7]

Accounting scandals

CEO Bernard Ebbers became very wealthy from the increasing price of his holdings in WorldCom common stock.[8] However, in the year 2000 the telecommunications industry was in decline. WorldCom's aggressive growth strategy suffered a serious setback when, in July 2000, it was forced by the U.S. Justice Department to abandon its proposed merger with Sprint.[8] By that time, WorldCom's stock price was decreasing, and banks were placing increasing demands on Ebbers to cover margin calls on his WorldCom stock that were used to finance his other businesses (lumber and yachting, among others).[8] In 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.[8] 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 result in a further decrease of the stock's price. However, this strategy failed. In April 2002, Ebbers resigned as CEO and was replaced by John Sidgmore, former CEO of UUNET Technologies Inc.

Beginning modestly during mid-1999 and continuing at an accelerated pace through May 2002, the company—directed by Ebbers (as CEO), Scott Sullivan (CFO), David Myers (Controller), and Buford "Buddy" Yates (Director of General Accounting)—used fraudulent accounting methods to disguise its decreasing earnings to maintain the price of WorldCom's stock.[8]

The fraud was accomplished primarily in two ways:

  1. Booking "line costs" (interconnection expenses with other telecommunication companies) as capital expenditures on the balance sheet instead of expenses.
  2. Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts".

In 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.[9][10][11] Soon thereafter, the company's audit committee and board of directors were notified of the fraud and acted swiftly: Sullivan was dismissed, Myers resigned, Arthur Andersen withdrew its audit opinion for 2001, and the U.S. Securities and Exchange Commission (SEC) began an investigation into these matters on June 26, 2002 (see accounting scandal).

By the end of 2003, it was estimated that the company's total assets had been inflated by about $11 billion.[8] This made the WorldCom scandal the largest accounting fraud in American history until the exposure of Bernard Madoff's $64 billion Ponzi scheme in 2008.


On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection in the largest such filing in United States history at the time (since overtaken by the bankruptcies of both Lehman Brothers and Washington Mutual in a span of eleven days during September 2008). The WorldCom bankruptcy proceedings were held before U.S. Federal Bankruptcy Judge Arthur J. Gonzalez, who simultaneously heard the Enron bankruptcy proceedings, which were the second largest bankruptcy case resulting from one of the largest corporate fraud scandals. None of the criminal proceedings against WorldCom and its officers and agents were originated by referral from Gonzalez or the Department of Justice lawyers. By 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.

Effective December 16, 2002, Michael Capellas became chairman and chief executive officer.[12] On April 14, 2003, WorldCom changed its name to MCI, and relocated its corporate headquarters from Clinton, Mississippi, to Dulles, Virginia.

During 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 with that technology.

The SEC and WorldCom concluded a deal in which WorldCom agreed to pay a civil penalty of $2.25 billion. The deal was approved by federal judge Jed Rakoff during July 2003.[13] In a sweeping consent decree, the SEC and Rakoff essentially took control of WorldCom. Rakoff appointed former SEC chairman Richard C. Breeden to oversee WorldCom's compliance with the SEC agreement. Breeden actively involved himself with the management of the company, and prepared a report for Rakoff, titled Restoring Trust, in which he proposed extensive corporate governance reforms, as part of an effort to "cast the new MCI into what he hoped would become a model of how shareholders should be protected and how companies should be run".[14]


The company emerged from Chapter 11 bankruptcy during 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 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 cancelled, making it totally worthless.

It had yet to pay many of its creditors, who had waited for two years for a portion of the money owed. Many of the small creditors included former employees, primarily those who were dismissed during June 2002 and whose severance and benefits were withheld when WorldCom filed for bankruptcy.

On August 7, 2002, the exWorldCom 5100 group was formed. 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 dismissed on June 28, 2002 before WorldCom filed for bankruptcy.[15]

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. 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),[16] former controller David Myers (pleaded guilty to securities fraud, conspiracy to commit securities fraud, and filing false statements on September 27, 2002),[17] former accounting director Buford Yates (pleaded guilty to conspiracy and fraud charges on October 7, 2002),[18] and former accounting managers Betty Vinson and Troy Normand (both pleading guilty to conspiracy and securities fraud on October 10, 2002).[19]

On July 13, 2005, Bernard Ebbers received a sentence that would keep him imprisoned for 25 years. At time of sentencing, Ebbers was 63 years old. On September 26, 2006, Ebbers surrendered himself to the Federal Bureau of Prisons prison at Oakdale, Louisiana, the Oakdale Federal Correctional Institution, to begin serving his sentence.

In December 2005, Microsoft Corporation announced that MCI will join it by providing Windows Live Messenger customers "Voice Over Internet Protocol" (VoIP) service to make telephone calls. This was MCI's last new product—- called "MCI Web Calling". After the merger, this product was renamed "Verizon Web Calling".

In March 2007, 16 of WorldCom's 17 former underwriters reached settlements with the investors.[20] Citigroup settled for $2.65 billion on May 10, 2004.[21]

See also


  1. Verizon closes book on MCI merger. January 6, 2006. Retrieved on 2011-12-10.
  2. Feder, Barnaby J. (December 12, 2003). "John Sidgmore, 52, Dies; Headed WorldCom". NY Times.
  3. "MCI Inc – SC 13D/A – LCC International Inc ." Securities and Exchange Commission. March 14, 2003. Retrieved on September 25, 2009.
  4. "WorldCom to emerge from collapse." CNN. Monday April 14, 2003. Retrieved on September 25, 2009.
  5. Scheisel, Seth (May 1, 2002). "Worldcom leader Departs Company during Turbulent Time". New York Times.
  6. "JUSTICE DEPARTMENT CLEARS WORLDCOM/MCI MERGER AFTER MCI AGREES TO SELL ITS INTERNET BUSINESS". US Department of Justice. July 15, 1998. Archived from the original on June 1, 2009.
  7. "WorldCom and Sprint End their merger duscussion". New York Times.
  8. "Report of Investigation by The Special Investigative Committee of the Board of Directors of Worldcom, Inc". SEC. Retrieved 2008-01-04.
  9. Pulliam, Susan; Deborah Soloman. "How Three Unlikely Sleuths Exposed Fraud at WorldCom: Firm's Own Employees Sniffed Out Cryptic Clues and Followed Hunches". The Wall Street Journal. Retrieved 2008-11-08.
  10. Ripley, Amanda (December 30, 2002). "The Night Detective". Time. Retrieved 2008-11-08.
  11. Cooper, Cynthia. Extraordinary Circumstances: The Journey of a Corporate Whistleblower. Hoboken, New Jersey: John Wiley & Sons, Inc. ISBN 978-0-470-12429-1. Retrieved 2008-11-08.
  12. "WorldCom, Inc. Annual Report". Edgar form 10-K. Securities and Exchange Commission. March 12, 2004. Retrieved August 9, 2013.
  13. The Honorable Jed Rakoff Approves Settlement of SEC'S Claim for a Civil Penalty Against Worldcom, US Department of Justice, July 7, 2003
  14. Restoring Trust: Corporate Governance for the future of MCI. Retrieved on 2011-12-10.
  15. "WorldCom News". WorldCom News. Retrieved 2012-05-15.
  16. "Ebbers indicted, ex-CFO pleads guilty". CNN. March 2, 2004. Retrieved May 12, 2010.
  17. John Geralds Former WorldCom exec pleads guilty. 27 Sep 2002
  18. Backover, Andrew (October 7, 2002). "Another guilty plea in WorldCom fraud case". USA Today. Retrieved May 12, 2010.
  19. 2 More WorldCom Execs Plead Guilty. (2009-02-11). Retrieved on 2011-12-10.
  20. Rovella, David E.. (2005-03-16) JPMorgan to Pay $2 Bln to Settle WorldCom Fraud Suit (Update5) Archived 2007-09-30 at the Wayback Machine. Retrieved on 2011-12-10.
  21. "Citigroup Reaches Settlement on WorldCom Class Action Litigation for $1.64 Billion After-Tax". May 10, 2004. Archived from the original on 2004-06-06. Retrieved 2011-12-10.

Further reading

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