0:00 For three years, WorldCom’s most important number was a lie.0:04 The company told Wall Street its single biggest expense was forty-two percent of revenue.0:11 The real number was over fifty percent, and that gap is where eleven BILLION dollars in fraud was hiding.0:20 This is the kind of deception we touched on last week, the story of hidden accounts and secret ledgers.0:28 But the WorldCom scandal took that deception to a scale that broke every record in American history.0:36 It starts with one man’s obsession with a number: the price of his company's stock.0:43 That man was CEO Bernie Ebbers.0:45 He was a charismatic former basketball coach who built a tiny long-distance company into a telecom giant.0:54 But by the late nineteen nineties, the dot-com bubble was deflating, and WorldCom’s growth was stalling.1:02 This was a problem for Ebbers personally.1:05 He had hundreds of millions of dollars in personal loans, all backed by his WorldCom stock.1:13 If the price fell, he’d be ruined.1:15 So he gave his Chief Financial Officer, Scott Sullivan, a simple directive: hit the numbers.1:23 No matter what.1:24 And Sullivan, the architect of the fraud, found a way.1:28 Here’s the core of the scheme.1:31 WorldCom’s biggest expense was something called "line costs." These are the fees it paid to other telecom companies to use their networks.1:42 They are an operating expense, meaning they hit your profits immediately.1:48 Sullivan’s team just… moved them.1:50 They started reclassifying billions in line costs as capital expenditures.1:56 Now, what does that mean?1:58 It’s the difference between paying your monthly rent and buying the entire building.2:05 Rent is an expense you pay now.2:07 A building is an asset you own for years.2:11 By calling these routine costs "assets," Sullivan made WorldCom’s expenses magically disappear from the quarterly profit-and-loss statement.2:22 Suddenly, the company looked incredibly profitable.2:26 The stock price stayed high.2:28 And Bernie Ebbers’ loans were safe.2:31 It started in 1999, and for nearly three years, the lie got bigger every quarter, eventually reaching over three-point-eight billion dollars in just this one accounting trick.2:45 So who knew?2:46 And how did it all fall apart?2:48 The company’s own external auditor, the now-infamous Arthur Andersen, missed it completely.2:56 The real story begins with an internal auditor named Cynthia Cooper.3:01 She got a tip from a manager that Scott Sullivan had moved four hundred million dollars out of his division's reserves with no explanation.3:12 It was a loose thread.3:14 Cooper started pulling.3:16 She and her small team began a secret investigation.3:20 They worked late at night, after everyone else went home, digging through the company's central accounting system.3:29 They knew they were looking into their own CFO, one of the most powerful men at WorldCom.3:36 When they found the journal entries—billions of dollars moved from operating expenses to capital accounts with no justification—they knew what it was.3:48 It was fraud on a scale they could barely comprehend.3:53 Cooper went to the board’s audit committee.3:56 Sullivan was called in.3:58 He tried to explain it away, told her to drop the investigation.4:03 She didn't.4:04 Within weeks, Sullivan was fired.4:07 Ebbers had already resigned.4:09 On July twenty-first, 2002, WorldCom filed for Chapter 11 bankruptcy.4:14 At the time, it was the largest in U.S.4:18 history.4:18 The fallout was immense.4:20 One hundred eighty billion dollars in investor wealth, gone.4:25 Tens of thousands of jobs, vanished.4:28 Bernie Ebbers was sentenced to twenty-five years in federal prison.4:33 Scott Sullivan, who cooperated with prosecutors, received five.4:38 But the real legacy is a law you’ve probably heard of: the Sarbanes-Oxley Act of 2002.4:45 It was passed directly because of WorldCom.4:49 It forced CEOs and CFOs to personally sign off on their company’s financials, making them criminally liable for fraud.4:58 It was a systemic fix for a systemic failure.5:02 The rules changed because eleven billion dollars proved the old ones were not enough.
