Bert C. Roberts Jr. was chairman of WorldCom’s board of directors. Immediately before that, he had been chairman of MCI, which WorldCom acquired on September 14, 1998, in a transaction valued at \($40\) billion. The acquisition made WorldCom the second-largest telecommunications company in the world.
Roberts signed a number of required documents filed by WorldCom with the Securities and Exchange Commission (SEC). These included Form 10-K for 1999, 2000, and 2001 and the registration statements for the 2000 and 2001 stock offerings, as well as registration statements filed in connection with WorldCom’s acquisition of Sky Tel Communications, Inc., in 1999 and of Intermedia Communications, Inc., in 2001.
On June 25, 2002, WorldCom announced a massive restatement of its financial statements for 2001 and the first quarter of 2002. Several weeks later, it entered bankruptcy. WorldCom ultimately made approximately \($76\) billion in financial adjustments for 2000 and 2001, reducing the company’s net equity from approximately \($50\) billion to approximately minus \($20\) billion. It is undisputed that, beginning at least as early as 2001, WorldCom executives engaged in a secret scheme to misrepresent WorldCom’s financial condition in the company’s filings with the SEC.
The facts underlying WorldCom’s June 25 announcement spurred numerous lawsuits. A consolidated class action was brought on behalf of a class of all persons and entities, excluding defendants and certain others affiliated with them or with WorldCom, who were financially injured after they acquired publicly traded WorldCom securities between April 29, 1999, and June 25, 2002. Roberts faced charges under a number of different federal acts regulating securities.1 1. Who should be liable for the massive loss investors suffered due to the restatement of WorldCom’s financial records?
2. What could Roberts have done to avoid the catastrophe that ensued when WorldCom had to restate its financial statements?