What this means for investors
The Worldcom fraud has far-reaching implications for investors. The basis of the American financial system is the integrity of the financial reports released by management. Unless those figures are as accurate as possible, analysts, money managers, and lay-investors alike do not have the resources to properly value a business. Although CFO Scott Sullivan defends his choice to allocate the expenses in question, he and Worldcom went far beyond the aggressive accounting practices used at some companies.
Remedial action
The Securities and Exchange Commission (SEC) is going to begin requiring executives at large corporations to sign statements swearing they believe, to the best of their knowledge, the financial statements released by the companies are as accurate as possible. This action could ultimately lead to the government holding executives responsible in the event of corporate fraud.
