On July 21,
2002, Worldcom, the global communications company responsible for
half the world's Internet network, filed for Chapter 11 -
Bankruptcy. It is estimated that Worldcom's bankruptcy is the
largest corporate failure in American history. The effects of
Worldcom's demise affect more than the company - it affects its
employees and bondholders.
On June 26, Worldcom's stock plummeted 73%, trading between 12-15
cents on the dollar. Today, following Worldcom's Chapter 11, the
stock is completely worthless, no longer being traded on the stock
exchanges. When Enron collapsed, it was found that over 60% of Enron
employees had 401(k)'s invested in company assets. As Enron filed
for bankruptcy, their stock became worthless, as well as their
employee's 401 (k)'s. Because of terrible, unethical decisions by
upper management, retirement plans for employees were wiped out.
Luckily, Worldcom employees have 401(k)'s with less than 4%
currently invested in company stocks. For those who own stock in
Worldcom, they cannot be helped. Their 401(k)'s are worthless. The
rest that invested their 401(k)'s in other stuff seem to be ok and
will retire as planned. A recent ruling has allowed Worldcom to pay
$36 million to laid off workers who did not collect their pension.
Worldcom argued that withholding severance from employees was
hurting the morale of workers still employed by the disgraced
company. Debates have begun whether or not top level executives
should be responsible for losses people suffered in their retirement
After the collapse of 2 huge
American company's, people have begun to move toward 401(k)
retirement plans where they call the shots. Diversification would
have helped those Worldcom employees who only had stock in the
company because it would have lowered the risk on their investment
and allowed bigger returns with Worldcom's collapse.
People interested in bonds were also hurt by the collapse of
Worldcom. In the late 90's, bondholders scooped up Worldcom bonds,
thinking that the global telecommunications giant would give them
solid returns. Many of the big banks, including Barclays’ of
Britain, also have a piece of Worldcom's debt. In the end, Worldcom
owes bondholders over $30 billion, along with $2.65 billion in
unsecured loans made to Worldcom as they began to go under.
Worldcom has about $2 billion in cash on hand, but doesn't have the
funds to make payments. Following their filing of Chapter 11,
bondholders and banks met on the same level. Both banks and
bondholders are unable to get paid because Worldcom's money has been
frozen and operations have stopped. Currently, company bonds are
trading at 12 cents on the dollar. But, after the restructuring,
bondholders will own Worldcom, one of the biggest American companies
at one time.
In conclusion, Worldcom's
shady dealings and accounting has affected many more people than we
originally thought. The employees who lost their pension, the
bondholders who lost their investment and the banks who can't get
money back on their loans should be compensated by the top level
executives that led to Worldcom's collapse. They invested in
Worldcom not realizing the risk they had bought. Big returns will
never happen for these investors, only big losses.