REPORT OF INVESTIGATION
BY THE

SPECIAL INVESTIGATIVE COMMITTEE OF THE BOARD OF DIRECTORS OF WORLDCOM, INC.

Dennis R. Beresford Nicholas deB. Katzenbach C.B. Rogers, Jr.

Counsel Wilmer, Cutler & Pickering Accounting Advisors PricewaterhouseCoopers LLP

March 31, 2003

I.

SUMMARY AND CONCLUSIONS ................................................................................. 1 A. The Nature of the Accounting Fraud....................................................................... 9 1. 2. B. C. D. E. Reduction of Reported Line Costs .............................................................. 9 Exaggeration of Reported Revenues ......................................................... 13

WorldCom’s Culture ............................................................................................. 18 Compromising Financial Arrangements ............................................................... 24 Why WorldCom’s Auditors Did Not Discover the Fraud..................................... 25 WorldCom’s Governance...................................................................................... 29 1. 2. 3. 4. Board’s Lack of Awareness of Accounting Fraud .................................... 29 Adequacy of Board’s Oversight of Company ........................................... 30 Stock Sales ................................................................................................ 33 Lease of Airplane to Chairman of Compensation Committee .................. 34

II. III.

SCOPE OF INVESTIGATION ........................................................................................ 37 BACKGROUND............................................................................................................... 44 A. B. C. WorldCom in the 1990s: Growth Through Acquisitions ..................................... 44 WorldCom from 1999 -