The Regents - University of California | Office of The President
The Regents - University of California | Office of The President
The Regents - University of California | Office of The President
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Financial<br />
Statement<br />
Representation<br />
<strong>of</strong> Line Cost<br />
Expenses<br />
(in millions)<br />
42<br />
Actual Line<br />
Cost Expenses<br />
(in millions)<br />
Difference<br />
(in millions)<br />
2000 $15,462 $16,697 $ 1,235<br />
2001 $14,739 $17,754 $ 3,015<br />
1 st Quarter<br />
2002<br />
$ 3,696 $ 4,297 $ 601<br />
Total $33,897 $38,748 $ 4,851<br />
108. According to a June 28, 2002 New York Times article which quoted a<br />
person close to the company: “[T]his started with the desired pr<strong>of</strong>it margin and<br />
then backed into the expense number.”<br />
109. <strong>The</strong> effect <strong>of</strong> this fraudulent scheme was to reduce WorldCom’s<br />
expenses which increased its net income. Correspondingly, the entries increased<br />
WorldCom’s capital asset accounts and had a material effect on the Balance Sheet<br />
and Cash Flow Statements, and had the effect <strong>of</strong> fraudulently inflating<br />
WorldCom’s income.<br />
C. Other Accounting Irregularities<br />
110. According to the First Interim Report <strong>of</strong> Dick Thornburgh <strong>of</strong><br />
November 4, 2002 and other published sources, it appears that WorldCom also<br />
fraudulently increased its revenues by engaging in accounting irregularities in the<br />
areas <strong>of</strong> inter-company balances, goodwill, improper billing and capitalized labor.<br />
VIII. THE FRAUD IS DISCOVERED AND THE COMPANY RESTATES<br />
ITS FINANCIAL STATEMENTS<br />
111. In March <strong>of</strong> 2002, the Securities and Exchange Commission launched<br />
a probe into WorldCom’s loans to Ebbers and other matters. On March 11, 2002,<br />
WorldCom reported that the Securities and Exchange Commission had requested<br />
COMPLAINT
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