WorldCom Files for Bankruptcy with $107 Billion in Assets

On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection, listing $107 billion in assets and $41 billion in debt—making it the largest bankruptcy in American history. The filing came just 26 days after the company disclosed $3.8 billion in accounting fraud, demonstrating the speed at which systematic fraud can destroy even the largest corporations.

WorldCom had been the second-largest long-distance telecommunications company in the United States, employing tens of thousands of workers and serving millions of customers. Between 1999 and 2002, CEO Bernard Ebbers and other senior executives engaged in accounting fraud to inflate earnings and maintain the company’s stock price, ultimately overstating assets by more than $11 billion.

The bankruptcy followed a series of devastating blows: on June 25, WorldCom disclosed the fraud; on June 26, the SEC filed civil fraud charges; on June 28, the company fired 17,000 employees in a desperate cost-cutting measure. By July 21, the company’s collapse was complete, wiping out billions in shareholder value and devastating employees and retirees whose savings were invested in WorldCom stock.

The WorldCom bankruptcy, combined with Enron’s collapse seven months earlier and Arthur Andersen’s destruction, created a crisis of confidence in corporate America and financial markets. The scale of the fraud—$11 billion in overstated assets—shocked lawmakers and regulators, accelerating congressional action on corporate reform legislation. Just nine days after WorldCom’s bankruptcy filing, President Bush signed the Sarbanes-Oxley Act into law, representing the last major legislative effort to impose criminal accountability on corporate executives for accounting fraud.