Men in Suits, Going to Jail

Well, let's go straight to the Wall Street Journal's story:

WorldCom Inc. has uncovered what is shaping up to be one of the largest accounting frauds in history with the discovery of $3.6 billion in expenses that were improperly booked as capital expenditures, a financial gimmick that boosted the firm's cash flow and profits over the past five quarters, according to people familiar with the situation."

The discovery was found during an internal investigation launched by the board after the ouster of WorldCom's chief executive, Bernard J. Ebbers, in April. WorldCom, based in Clinton, Miss., has fired its longtime chief financial officer, Scott Sullivan. "The whole thing is just unbelievable," said one person familiar with the matter.

The developments are expected to spark a restatement that could deliver the final blow to WorldCom, which was one of the biggest stock market stars of the 1990s. The telecommunications giant has been hobbled by a collapsing market, an investigation by the Securities and Exchange Commission and $30 billion in debt.

The discovery is expected to result in a restatement to WorldCom's earnings that could be one of the largest in corporate history.

Sanford Bernstein analyst Jeff Halpern said he expected swift action from WorldCom's banks. "I would think the banks will foreclose on them immediately," said Mr. Halpern, who said that it is possible that WorldCom will now seek the protection of bankruptcy court. "This send them into a spiral of customer defections."

Is there anyone left who thinks that corporate fraud and malfeasance is not a huge political issue? Is there anyone out there who thinks that the only two people complicit in this $3.6 billion fraud are the former CEO and CFO of WorldCom? This is a systemic crisis. The lawyers and the bankers and the accountants and the board directors are all party to this fraud, even if they are not technically criminally liable. This is the biggest business scandal story since Drexel. And it will roil the markets for months.