10 Famous financial frauds you should know

5) WorldCom scandal (2002)

Telecommunications giant WorldCom came under intense scrutiny after yet another instance of some serious “book cooking.” WorldCom recorded operating expenses as investments. Apparently, the company felt that office pens, pencils, and paper were an investment in the future of the company and, therefore, expensed (or capitalized) the cost of these items over a number of years.

In total, $3.8 billion worth of normal operating expenses, which should all be recorded as expenses for the fiscal year in which they were incurred, were treated as investments and were recorded over a number of years. This little accounting trick grossly exaggerated profits for the year the expenses were incurred. In 2001, WorldCom reported profits of more than $1.3 billion.

In fact, its business was becoming increasingly unprofitable. Who suffered the most in this deal? The employees; tens of thousands of them lost their jobs. The next ones to feel the betrayal were the investors who had to watch the gut-wrenching downfall of WorldCom’s stock price, as it plummeted from more than $60 to less than $1.14