Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order initiated by the debtor. Bankruptcy is not the only legal status that an insolvent person may have, the term bankruptcy is therefore not a synonym for insolvency. In some countries, such as the United Kingdom, bankruptcy is limited to individuals. In the United States, bankruptcy is applied more broadly to formal insolvency proceedings. In France, the cognate French word banqueroute is used for cases of fraudulent bankruptcy, whereas the term faillite is used for bankruptcy in accordance with the law; the word bankruptcy is derived from Italian banca rotta, meaning "broken bench", which may stem from a widespread custom in the Republic of Genoa of breaking a moneychanger's bench or counter to signify their insolvency, or which may be only a figure of speech. In Ancient Greece, bankruptcy did not exist.
If a man owed and he could not pay, he and his wife, children or servants were forced into "debt slavery", until the creditor recouped losses through their physical labour. Many city-states in ancient Greece limited debt slavery to a period of five years. However, servants of the debtor could be retained beyond that deadline by the creditor and were forced to serve their new lord for a lifetime under harsher conditions. An exception to this rule was Athens; the Statute of Bankrupts of 1542 was the first statute under English law dealing with bankruptcy or insolvency. Bankruptcy is documented in East Asia. According to al-Maqrizi, the Yassa of Genghis Khan contained a provision that mandated the death penalty for anyone who became bankrupt three times. A failure of a nation to meet bond repayments has been seen on many occasions. Philip II of Spain had to declare four state bankruptcies in 1557, 1560, 1575 and 1596. According to Kenneth S. Rogoff, "Although the development of international capital markets was quite limited prior to 1800, we catalog the various defaults of France, Prussia and the early Italian city-states.
At the edge of Europe, Egypt and Turkey have histories of chronic default as well." The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on the elimination of insolvent entities, but on the remodeling of the financial and organizational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of the business. For private households, some argue that it is insufficient to dismiss debts after a certain period, it is important to assess the underlying problems and to minimize the risk of financial distress to re-occur. It has been stressed that debt advice, a supervised rehabilitation period, financial education and social help to find sources of income and to improve the management of household expenditures must be provided during this period of rehabilitation. In most EU Member States, debt discharge is conditioned by a partial payment obligation and by a number of requirements concerning the debtor's behavior.
In the United States, discharge is conditioned to a lesser extent. The spectrum is broad in the EU, with the UK coming closest to the US system; the Other Member States do not provide the option of a debt discharge. Spain, for example, passed a bankruptcy law in 2003 which provides for debt settlement plans that can result in a reduction of the debt or an extension of the payment period of maximally five years, but it does not foresee debt discharge. In the US, it is difficult to discharge federal or federally guaranteed student loan debt by filing bankruptcy. Unlike most other debts, those student loans may be discharged only if the person seeking discharge establishes specific grounds for discharge under the Brunner test, under which the court evaluates three factors: If required to repay the loan, the borrower cannot maintain a minimal standard of living. If a debtor proves all three elements, a court may permit only a partial discharge of the student loan. Student loan borrowers may benefit from restructuring their payments through a Chapter 13 bankruptcy repayment plan, but few qualify for discharge of part or all of their student loan debt.
Bankruptcy fraud is a white-collar crime. While difficult to generalize across jurisdictions, common criminal acts under bankruptcy statutes involve concealment of assets, concealment or destruction of documents, conflicts of interest, fraudulent claims, false statements or declarations, fee fixing or redistribution arrangements. Falsifications on bankruptcy forms constitute perjury. Multiple filings are not in and of themselves criminal, but they may violate provisions of bankruptcy law. In the U. S. bankruptcy fraud statutes are focused on the mental state of particular actions. Bankruptcy fraud is a federal crime in the United States. Bankruptcy fraud should be distinguished from strategic bankruptcy, not a criminal act since it creates a real bankruptcy state. Howeve
The euro is the official currency of 19 of the 28 member states of the European Union. This group of states is known as the eurozone or euro area, counts about 343 million citizens as of 2019; the euro is the second largest and second most traded currency in the foreign exchange market after the United States dollar. The euro is subdivided into 100 cents; the currency is used by the institutions of the European Union, by four European microstates that are not EU members, as well as unilaterally by Montenegro and Kosovo. Outside Europe, a number of special territories of EU members use the euro as their currency. Additionally, 240 million people worldwide as of 2018 use currencies pegged to the euro; the euro is the second largest reserve currency as well as the second most traded currency in the world after the United States dollar. As of August 2018, with more than €1.2 trillion in circulation, the euro has one of the highest combined values of banknotes and coins in circulation in the world, having surpassed the U.
S. dollar. The name euro was adopted on 16 December 1995 in Madrid; the euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit at a ratio of 1:1. Physical euro coins and banknotes entered into circulation on 1 January 2002, making it the day-to-day operating currency of its original members, by March 2002 it had replaced the former currencies. While the euro dropped subsequently to US$0.83 within two years, it has traded above the U. S. dollar since the end of 2002, peaking at US$1.60 on 18 July 2008. In late 2009, the euro became immersed in the European sovereign-debt crisis, which led to the creation of the European Financial Stability Facility as well as other reforms aimed at stabilising and strengthening the currency; the euro is managed and administered by the Frankfurt-based European Central Bank and the Eurosystem. As an independent central bank, the ECB has sole authority to set monetary policy; the Eurosystem participates in the printing and distribution of notes and coins in all member states, the operation of the eurozone payment systems.
The 1992 Maastricht Treaty obliges most EU member states to adopt the euro upon meeting certain monetary and budgetary convergence criteria, although not all states have done so. The United Kingdom and Denmark negotiated exemptions, while Sweden turned down the euro in a 2003 referendum, has circumvented the obligation to adopt the euro by not meeting the monetary and budgetary requirements. All nations that have joined the EU since 1993 have pledged to adopt the euro in due course. Since 1 January 2002, the national central banks and the ECB have issued euro banknotes on a joint basis. Euro banknotes do not show. Eurosystem NCBs are required to accept euro banknotes put into circulation by other Eurosystem members and these banknotes are not repatriated; the ECB issues 8% of the total value of banknotes issued by the Eurosystem. In practice, the ECB's banknotes are put into circulation by the NCBs, thereby incurring matching liabilities vis-à-vis the ECB; these liabilities carry interest at the main refinancing rate of the ECB.
The other 92% of euro banknotes are issued by the NCBs in proportion to their respective shares of the ECB capital key, calculated using national share of European Union population and national share of EU GDP weighted. The euro is divided into 100 cents. In Community legislative acts the plural forms of euro and cent are spelled without the s, notwithstanding normal English usage. Otherwise, normal English plurals are sometimes used, with many local variations such as centime in France. All circulating coins have a common side showing the denomination or value, a map in the background. Due to the linguistic plurality in the European Union, the Latin alphabet version of euro is used and Arabic numerals. For the denominations except the 1-, 2- and 5-cent coins, the map only showed the 15 member states which were members when the euro was introduced. Beginning in 2007 or 2008 the old map is being replaced by a map of Europe showing countries outside the Union like Norway, Belarus, Russia or Turkey.
The 1-, 2- and 5-cent coins, keep their old design, showing a geographical map of Europe with the 15 member states of 2002 raised somewhat above the rest of the map. All common sides were designed by Luc Luycx; the coins have a national side showing an image chosen by the country that issued the coin. Euro coins from any member state may be used in any nation that has adopted the euro; the coins are issued in denominations of €2, €1, 50c, 20c, 10c, 5c, 2c, 1c. To avoid the use of the two smallest coins, some cash transactions are rounded to the nearest five cents in the Netherlands and Ireland and in Finland; this practice is discouraged by the Commission, as is the practice of certain shops of refusing to accept high-value euro notes. Commemorative coins with €2 face value have been issued with changes to the design of the national side of the coin; these include both issued coins, such as the €2 commemorative coin for the fiftieth anniversary of the signing of the Treaty of Rome, nationally i
Panic of 1837
The Panic of 1837 was a financial crisis in the United States that touched off a major recession that lasted until the mid-1840s. Profits and wages went down while unemployment went up. Pessimism abounded during the time; the panic had both foreign origins. Speculative lending practices in western states, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, restrictive lending policies in Great Britain were all to blame. On May 10, 1837, banks in New York City suspended specie payments, meaning that they would no longer redeem commercial paper in specie at full face value. Despite a brief recovery in 1838, the recession persisted for seven years. Banks collapsed, businesses failed, prices declined, thousands of workers lost their jobs. Unemployment may have been as high as 25% in some locales; the years 1837 to 1844 were speaking, years of deflation in wages and prices. The crisis followed a period of economic expansion from mid-1834 to mid-1836; the prices of land and slaves rose in these years.
The origins of this boom had many sources, both international. Because of the peculiar factors of international trade at the time, abundant amounts of silver were coming into the United States from Mexico and China. Land sales and tariffs on imports were generating substantial federal revenues. Through lucrative cotton exports and the marketing of state-backed bonds in British money markets, the United States acquired significant capital investment from Great Britain; these bonds financed transportation projects in the United States. British loans, made available through Anglo-American banking houses like Baring Brothers, fueled much of the United States's westward expansion, infrastructure improvements, industrial expansion, economic development during the antebellum era. In 1836, directors of the Bank of England noticed that the Bank's monetary reserves had declined precipitously in recent years because of poor wheat harvests that forced Great Britain to import much of its food. To compensate, the directors indicated that they would raise interest rates from 3 to 5 percent.
The conventional financial theory held that banks should raise interest rates and curb lending when faced with low monetary reserves. Raising interest rates, according to the laws of supply and demand, was supposed to attract species since money flows where it will generate the greatest return. In the open economy of the 1830s, characterized by free trade and weak trade barriers, the monetary policies of the hegemonic power – in this case, Great Britain – were transmitted to the rest of the interconnected global economic system, included the U. S; the result was that as the Bank of England raised interest rates, major banks in the United States were forced to do the same. When New York banks raised interest rates and scaled back on lending, the effects were damaging. Since the price of a bond bears an inverse relationship to the yield, the increase in prevailing interest rates would have forced down the price of American securities. Demand for cotton plummeted; the price of cotton fell by 25% in February and March 1837.
The United States economy in the southern states, was dependent on stable cotton prices. Receipts from cotton sales provided funding for some schools, balanced the nation's trade deficit, fortified the US dollar, procured foreign exchange earnings in British pound sterling, the world's reserve currency at the time. Since the United States was still a predominantly agricultural economy centered on the export of staple crops and an incipient manufacturing sector, a collapse in cotton prices would have caused massive reverberations. Within the United States, there were several contributing factors. In July 1832, President Andrew Jackson vetoed the bill to recharter the Second Bank of the United States, the nation's central bank and fiscal agent; as the BUS wound up its operations in the next four years, state-chartered banks in the West and South relaxed their lending standards, maintaining unsafe reserve ratios. Two domestic policies, in particular, exacerbated an volatile situation; the Specie Circular of 1836 mandated that western lands could be purchased only with gold and silver coin.
The circular was an executive order issued by Andrew Jackson and favored by Senator Thomas Hart Benton of Missouri and other hard-money advocates. The intent was to curb speculation in public lands, but the circular set off a real estate and commodity price crash as most buyers were unable to come up with sufficient hard money or "specie" to pay for the land. Secondly, the Deposit and Distribution Act of 1836 placed federal revenues in various local banks across the country. Many of these banks were located in western regions; the effect of these two policies was to transfer specie away from the nation's main commercial centers on the East Coast. With lower monetary reserves in their vaults, major banks and financial institutions on the East Coast had to scale back their loans, a major cause of the panic along with the real estate crash. Americans at the time attributed the cause of the panic principally to domestic political conflicts. Democrats blamed the bankers. Whigs blamed Jackson for refusing to renew the charter of the Bank, resulting in the withdrawal of government funds from the bank.
Martin Van Buren, who became president in March 1837, was blamed for the panic though his inauguration preceded the panic by only five weeks. Van Buren's refusal to use government intervention to address the crisis (such as emergency relief and increa
The Mississippi Company was a corporation holding a business monopoly in French colonies in North America and the West Indies. When land development and speculation in the region became frenzied and detached from economic reality, the Mississippi bubble became one of the earliest examples of an economic bubble. In May 1716, the Banque Générale Privée, which developed the use of paper money, was set up by John Law, it was a private bank, but three quarters of the capital consisted of government bills and government-accepted notes. In August 1717, he bought the Mississippi Company to help the French colony in Louisiana. In the same year Law conceived. Law was named the Chief Director of this new company, granted a trade monopoly of the West Indies and North America by the French government; the bank became the Banque Royale in 1718, meaning the notes were guaranteed by the king, Louis XV of France. The company absorbed the Compagnie des Indes Orientales, the Compagnie de Chine, other rival trading companies and became the Compagnie Perpetuelle des Indes on 23 May 1719 with a monopoly of commerce on all the seas.
The bank began issuing more notes than it could represent in coinage. Louis XIV's long reign and wars had nearly bankrupted the French monarchy. Rather than reduce spending, the Regency of Louis XV of France endorsed the monetary theories of Scottish financier John Law. In 1716, Law was given a charter for the Banque Royale under which the national debt was assigned to the bank in return for extraordinary privileges; the key to the Banque Royale agreement was that the national debt would be paid from revenues derived from opening the Mississippi Valley. The Bank was tied to the Companies of the Indies. All were known as the Mississippi Company; the Mississippi Company had a monopoly on mineral wealth. The Company boomed on paper. Law was given the title Duc d'Arkansas. Bernard de la Harpe and his party left New Orleans in 1719 to explore the Red River. In 1721, he explored the Arkansas River. At the Yazoo settlements in Mississippi he was joined by Jean Benjamin who became the scientist for the expedition.
In 1718, there were only 700 Europeans in Louisiana. The Mississippi Company arranged ships to move 800 more, who landed in Louisiana in 1718, doubling the European population. John Law encouraged Germans Germans of the Alsatian region who had fallen under French rule, the Swiss to emigrate, they give their name to the regions of the Côte des Allemands and the Lac des Allemands in Louisiana. Prisoners were set free in Paris in September 1719 onwards, under the condition that they marry prostitutes and go with them to Louisiana; the newly married couples were taken to the port of embarkation. In May 1720, after complaints from the Mississippi Company and the concessioners about this class of French immigrants, the French government prohibited such deportations. However, there was a third shipment of prisoners in 1721. Law exaggerated the wealth of Louisiana with an effective marketing scheme, which led to wild speculation on the shares of the company in 1719; the scheme promised success for the Mississippi Company by combining investor fervor and the wealth of its Louisiana prospects into a sustainable, joint-stock, trading company.
The popularity of company shares were such that they sparked a need for more paper bank notes, when shares generated profits the investors were paid out in paper bank notes. In 1720, the bank and company were merged and Law was appointed by Philippe II, Duke of Orleans Regent for Louis XV, to be Comptroller General of Finances to attract capital. Law's pioneering note-issuing bank thrived until the French government was forced to admit that the number of paper notes being issued by the Banque Royale exceeded the value of the amount of metal coinage it held; the "bubble" burst at the end of 1720, when opponents of the financier attempted to convert their notes into specie en masse, forcing the bank to stop payment on its paper notes. By the end of 1720 Philippe d'Orléans had dismissed Law from his positions. Law fled France for Brussels moving on to Venice, where he lived off his gambling, he was buried in the church San Moisè in Venice. Richard Cantillon – banker who made an early profit from the company List of trading companies European chartered companies founded around the 17th century "Learning from past investment manias".
"Mississippi Scheme". Collier's New Encyclopedia. 1921. "Mississippi Scheme". New International Encyclopedia. 1905
Arthur Andersen LLP, based in Chicago, was an American holding company. One of the "Big Five" accounting firms, the firm had provided auditing and consulting services to large corporations. By 2001, it had become one of the world's largest multinational companies. In 2002, the firm voluntarily surrendered its licenses to practice as Certified Public Accountants in the United States after being found guilty of criminal charges relating to the firm's auditing of Enron, an energy corporation based in Texas, which filed for bankruptcy in 2001. In 2005, the Supreme Court of the United States unanimously reversed Arthur Andersen's conviction due to serious errors in the trial judge's instructions to the jury that convicted the firm; the former consultancy and outsourcing practice of the firm separated from the firm's accountancy practice and split from Andersen Worldwide in 2000 whereby it renamed itself Accenture. It continues to operate. Born 30 May 1885 in Plano and orphaned at the age of 16, Arthur E. Andersen began working as a mail boy by day and attended school at night being hired as the assistant to the comptroller of Allis-Chalmers in Chicago.
In 1908, after attending courses at night while working full-time, he graduated from the Kellogg School at Northwestern University with a bachelor's degree in business. That same year, at age 23, he became the youngest CPA in Illinois; the firm of Arthur Andersen was founded in 1913 by Arthur Andersen and Clarence DeLany as Andersen, DeLany & Co. The firm changed its name to Arthur Andersen & Co. in 1918. Arthur Andersen's first client was the Joseph Schlitz Brewing Company of Milwaukee. In 1915, due to his many contacts there, the Milwaukee office was opened as the firm's second office. Andersen had an unwavering faith in education as the basis upon which the new profession of accounting should be developed, he created the profession's first centralized training program and believed in training during normal working hours. He was generous in his commitment to aiding educational and charitable organizations. In 1927, he was elected to the board of trustees of Northwestern University and served as its president from 1930 to 1932.
He was chairman of the board of certified public accountant examiners of Illinois. Andersen, who headed the firm until his death in 1947, was a zealous supporter of high standards in the accounting industry. A stickler for honesty, he argued that accountants' responsibility was to investors, not their clients' management. For many years, Andersen's motto was "Think straight, talk straight"–an axiom passed on from his mother. During the early years, it is reputed that Andersen was approached by an executive from a local rail utility to sign off on accounts containing flawed accounting, or else face the loss of a major client. Andersen refused in no uncertain terms, replying that there was "not enough money in the city of Chicago" to make him do it; the railroad fired Andersen. Arthur Andersen led the way in a number of areas of accounting standards. Being among the first to identify a possible sub-prime bust, Arthur Andersen dissociated itself from a number of clients in the 1970s. With the emergence of stock options as a form of compensation, Arthur Andersen was the first of the major accountancy firms to propose to the FASB that stock options should be included on expense reports, thus impacting on net profit just as cash compensation would.
By the 1980s, standards throughout the industry fell as accountancy firms struggled to balance their commitment to audit independence against the desire to grow their burgeoning consultancy practices. Having established a reputation for IT consultancy in the 1980s, Arthur Andersen was no exception; the firm expanded its consultancy practice to the point where the bulk of its revenues were derived from such engagements, while audit partners were continually encouraged to seek out opportunities for consulting fees from existing audit clients. By the late-1990s, Arthur Andersen had succeeded in tripling the per-share revenues of its partners. Predictably, Arthur Andersen struggled to balance the need to maintain its faithfulness to accounting standards with its clients' desire to maximize profits in the era of quarterly earnings reports. Arthur Andersen has been alleged to have been involved in the fraudulent accounting and auditing of Sunbeam Products, Waste Management, Asia Pulp & Paper, the Baptist Foundation of Arizona, WorldCom, as well as the infamous Enron case, among others.
Two of the last three Comptrollers General of the US General Accounting Office were top executives of Arthur Andersen. The consulting wing of the firm became important during the 1970s and 1980s, growing at a much faster rate than the more established accounting and tax practice; this disproportionate growth, the consulting division partners' belief that they were not garnering their fair share of firm profits, created increasing friction between the two divisions. In 1989, Arthur Andersen and Andersen Consulting became separate units of Andersen Worldwide Société Coopérative. Arthur Andersen increased its use of accounting services as a springboard to sign up clients for Andersen Consulting's more lucrative business; the two businesses spent most of the 1990s in a bitter dispute. Andersen Consulting saw a huge surge in profits during the decade; the consultants, continued to resent transfer payments they were required to make to Arthur Andersen. In August 2000, at the conclusion of International Chamber of Commerce arbitration of the dispute, the arbitrators granted Andersen Consulting its independence f
Stock market crash
A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors, they follow speculative stock market bubbles. Stock market crashes are social phenomena where external economic events combine with crowd behavior and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell. Speaking, crashes occur under the following conditions: a prolonged period of rising stock prices and excessive economic optimism, a market where P/E ratios exceed long-term averages, extensive use of margin debt and leverage by market participants. Other aspects such as wars, large-corporation hacks, changes in federal laws and regulations, natural disasters of economically productive areas may influence a significant decline in the stock market value of a wide range of stocks. All such stock drops may result in the rise of stock prices for corporations competing against the affected corporations.
There is no numerically specific definition of a stock market crash but the term applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in years. Crashes are associated with bear markets, they do not go hand in hand; the crash of 1987, for example, did not lead to a bear market. The Japanese bear market of the 1990s occurred over several years without any notable crashes. Tulip Mania is considered to be the first recorded speculative bubble. Early stock market bubbles and crashes have their roots in socio-politico-economic activities of the 17th-century Dutch Republic, the Dutch East India Company, the Dutch West India Company in particular; as Stringham & Curott remarked, "Business ventures with multiple shareholders became popular with commenda contracts in medieval Italy, Malmendier provides evidence that shareholder companies date back to ancient Rome.
Yet the title of the world's first stock market deservedly goes to that of seventeenth-century Amsterdam, where an active secondary market in company shares emerged. The two major companies were the Dutch East India Company and the Dutch West India Company, founded in 1602 and 1621. Other companies existed, but they were not as large and constituted a small portion of the stock market." The mathematical description of stock market movements has been a subject of intense interest. The conventional assumption has been that stock markets behave according to a random log-normal distribution. Among others, mathematician Benoît Mandelbrot suggested as early as 1963 that the statistics prove this assumption incorrect. Mandelbrot observed that large movements in prices are much more common than would be predicted from a log-normal distribution. Mandelbrot and others suggested that the nature of market moves is much better explained using non-linear analysis and concepts of chaos theory; this has been expressed in non-mathematical terms by George Soros in his discussions of what he calls reflexivity of markets and their non-linear movement.
George Soros said in late October 1987,'Mr. Robert Prechter's reversal proved to be the crack that started the avalanche'. Research at the Massachusetts Institute of Technology suggests that there is evidence the frequency of stock market crashes follows an inverse cubic power law; this and other studies such as Prof. Didier Sornette's work suggest that stock market crashes are a sign of self-organized criticality in financial markets. In 1963, Mandelbrot proposed that instead of following a strict random walk, stock price variations executed a Lévy flight. A Lévy flight is a random walk, disrupted by large movements. In 1995, Rosario Mantegna and Gene Stanley analyzed a million records of the S&P 500 market index, calculating the returns over a five-year period. Researchers continue to study this theory using computer simulation of crowd behaviour, the applicability of models to reproduce crash-like phenomena. Research at the New England Complex Systems Institute has found warning signs of crashes using new statistical analysis tools of complexity theory.
This work suggests that the panics that lead to crashes come from increased mimicry in the market. A dramatic increase in market mimicry occurred during the whole year before each market crash of the past 25 years, including the recent financial crisis; when investors follow each other's cues, it is easier for panic to take hold and affect the market. This work is a mathematical demonstration of a significant advance warning sign of impending market crashes. A recent phenomenon, known as the RR Reversal, has been well documented in recent years – where a increasing stock experiences an inexplicable and sudden pullback to the magnitude of 10 – 40% within a month. In 1907 and in 1908, the NYSE fell by nearly 50% due to a variety of factors, led by the manipulation of copper stocks by the Knickerbocker company. Shares of United Copper rose up to October, thereafter crashed, leading to panic. A number of investment trusts and banks that had invested their money in the stock market fell and started to close down.
MCI, Inc. was an American telecommunication corporation a subsidiary of Verizon Communications, with its main office in Ashburn, Virginia. The corporation was formed as a result of the merger of WorldCom and MCI Communications corporations, 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 and MCIP. The corporation was purchased by Verizon Communications with the deal finalizing on January 6, 2006, is now identified as that company's Verizon Enterprise Solutions division with the local residential divisions being integrated into local Verizon subsidiaries. For a time, WorldCom was the United States's second largest long distance telephone company. WorldCom grew by acquiring other telecommunications companies, most notably MCI Communications in 1998. In 1996, it acquired a Tier 1 ISP that forms a major part of the Internet backbone.
It was headquartered in Clinton, Mississippi before relocating to Ashburn, Virginia. The company began as Long Distance Discount Service, Inc. 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, relocated to Clinton, Mississippi; the company grew in the 1990s. Among the companies that were bought or merged with WorldCom were Advanced Communications Corp. Metromedia Communication Corp. Resurgens Communications Group, IDB Communications Group, Williams Technology Group, Inc. and MFS Communications Company, MCI in 1998. The acquisition of MFS included UUNET Technologies, Inc., 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 retained the CompuServe Network Services Division, sold its online service to America Online, received AOL's network division, ANS.
The acquisition of Digex during June 2001 was complex. 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. 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. On July 13, 2000, the boards of directors of both companies terminated the merger; that year, MCI WorldCom renamed itself "WorldCom". CEO Bernard Ebbers became wealthy from the increasing price of his holdings in WorldCom common stock.
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. By that time, WorldCom's stock price was decreasing, banks were placing increasing demands on Ebbers to cover margin calls on his WorldCom stock that were used to finance his other businesses. 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; 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, Scott Sullivan, David Myers, Buford "Buddy" Yates —used fraudulent accounting methods to disguise its decreasing earnings to maintain the price of WorldCom's stock.
The fraud was accomplished in two ways: Booking "line costs" as capital expenditures on the balance sheet instead of expenses. Inflating revenues with bogus accounting entries from "corporate unallocated revenue accounts". In 2002, a small team of internal auditors at WorldCom worked together at night and secretly, to investigate and reveal $3.8 billion worth of fraud. 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, the U. S. Securities and Exchange Commission began an investigation into these matters on June 26, 2002. By the end of 2003, it was estimated that the company's total assets had been inflated by about $11 billion; this made the WorldCom scandal the largest accounting fraud in American history until the exposure of Bernard