Corporate Liability

Introduction

The directors and officer’s decisions in a corporation are not subject to personal liability. Even though one of them makes a decision and later it turns to be a negative decision in the business, the corporate law will not render the individual liable not until the decision violates a certain duty supposed to be done by the said director or officer. The corporate law has however expanded liability in several occasions. For instance, when the officer or director makes a decision which has a negative impact on the corporation financially, commits a crime or makes decisions in their own interest to the corporation detriment.

The paper will discuss a case of corporate research and will take the example of Worldcom Corporation. I will discuss the criminal and civil liability of the officers and directors of the corporation, the duties they bleached, the progress of lawsuits, who filed the suits and the claims filed, conflicts that occurred and the way the activities affected shareholders as well as employees.

Worldcom Corporation.

World com is the second largest telecommunication company in the world. In June 25 2002, the company announced that it had experienced overstated earnings for the previous year and first quarter in year 2002 of more than 3.8 billion dollars.The directors and officers faced criminal and civil liability. The Directors decided to pay a huge amount of dollars from their pocket to act as settlement agreement. The U.S. exchange community and securities (SEC) filed charges towards the company officers with the aim of recovering huge fines on top of criminal convictions. The situation let to various changes in the security laws on the side of potential liabilities for the directors and officers (US Legal, p1).There were huge accounting frauds which inflated the revenues of the corporate amounting to billion dollars. The corporate officials were involved in hiding debts as well as manufactured revenue through making special purpose entities, false entries and making use of unorthodox techniques in accounting (Brickey, p373).

The claims were filed through the indictment of Scott Sullivian, World com’s CFO,secretary, treasurer and the Director in General accounting by The Government. They were charged with conspiring with the aim of inflating the earnings of the corporation, committing fraud and making wrong filings with SEC. Sullivan indictment was able to also name three unindicted conspirators who were also participating in the scheme.

After the announcement of the accounting problems in June 25th, the company sharelolders and employees have suffered quite a lot. The Worldcom stock started falling from $64.50 to as low as $2 per share. It even reduced to below $1 after the announcement which mentioned that there could still be other irregularities. The changes were as a result of the company changing its economic prospects which has a very negative impact on the investors who continued to hold their shares and others bought more with hopes that there could be a rebound.

The employees with company’s stock in retirement plans were not left out in suffering losses. In the year 2000, $642.3 million or 32% of the retirement funds which were in the corporation stock have reduced to less than 4% or $18.7 million. On the other hand, the corporation stated that it was to reduce the number by dismissing 17,000. This also had an impact to the employees (Lyke, p4).

The criminal and lawsuits are on the process of investigating whether the CEO was involved in the fraud They are trying to obtain productive information from the witnesses who are cooperating on the matter. Most of them said that the company books were falsified through orders from managers from high office.

Work cited

US Legal, 2010. Officer and Director Liability. University of Liverpool-Online Web. http://corporations.uslegal.com/officer-and-director-liability/