Customer Reviews

Stolen Without A Gun: Confessions from inside history's biggest accounting fraud - the collapse of MCI Worldcom

5 star:		(14)
4 star:		(3)
3 star:		(1)
2 star:		(1)
1 star:		(1)

 

 

Stolen Without a Gun is an insider's look at how, under corporate pressure to show profits and without proper oversight, the temptation to "cook the books" can turn an otherwise hardworking, well-meaning individual to fraud. What's particularly frightening is not only how easily the scheme was executed, but also how close it came to never being discovered. It's also an excellent demonstration of why accounting procedures, as time-consuming and obstructive as they may seem to be at times, are necessary to prevent this sort of thing from happening. I'd recommend this to anyone who works in a high pressure corporate environment.

Stolen Without a Gun reads like a John Grisham novel, but is a true story. From the first few pages I was hooked and the book was hard to put down. Palvo and Weinberg tell the dark story of corporate corruption in such a way that you feel like you are experiencing some of the seedy events that ultimately brought down an entire industry. This is a fascinating financial thriller. Good intentions, power, corruption, greed, conviction and then redemption. This book has it all.

Written in crime-novel style, this book shows how petty fraud and felony-class crimes alike bloomed at MCI as executives pushed their underlings to put up numbers that kept Wall Street happy. The depth of detail is startling, and could serve as a textbook for all the different ways public companies can cook the books. Required reading for any investor who's fallen in love with a high-flying stock.

As I read, all I could think is: Seriously? This story is true? I remember MCI as a company that wouldn't return service requests and made some headlines. Apparently the back story involved phone sex companies, thugs with guns, a posh club on the Cayman Islands, and a boatload of crooks. The end is all the more maddening when the truth sinks in. Some enterprising business professor should assign this to their students. It's educational, teaching lessons about managing and investing, but you don't realize it while you're in the throes of the story.

Everyone probably has his/her fraud breaking point, the point at which he/she will commit fraud for the payoff. This book should be a good lesson that crime does not pay. Country club prison? No. Lots of money saved up for after the prison release? No. This nonfiction book reads like fiction and should scare just about anyone straight. You think you'll get away with the crime but that just doesn't happen very often. I had chills reading this book and you probably will, too.

One of the best book ever written about the telecom bubble of the 1990s by one insider. It shows the mechanisms that propelled a telecommunications carrier into a world of financial fantasy and finally pure fraud. In 1992, when a young engineer, Walter Pavlo was hired by MCI Communications, the company was highly revered as the David who brought down the telecommunications Goliath, AT&T. If one wanted to be where the action was in the new world of communications, MCI was it. The only problem was the department that had hired Pavlo: Financial Services, i.e. accounts receivable, credit and collections. This consisted in collecting bills from long distance carriers and 900 numbers that used MCI network. As it happens, long distance carriers were burgeoning on the fertile left by the AT&T break-up. Companies such as WorldCom appeared on the market and started cutting the prices in order to gain market share, not profits. Actually, profit was the least of their concerns. The idea was to inflate the share value as quickly as possible and to cash in a few millions dollars in stock option to be able to retire young and rich.

900 numbers and long distance cards was a bizarre business. Scores of tiny companies rented a line in a slum and were offering dial-a-porn or dating services to people too poor to afford paying their telephone bill. Prepaid long distance card business was even fishier since cards were sold in small ethnic grocery stores and the money was collected in cash. The temptation was great to sell international minutes to India, say 20¢ a minute, when the price charged by MCI to route the call was billed 80¢ a minute. The market was humming with fly-by-nights whose only goal was to collect as much money as they can, until the 90 days past due debts limit after which MCI would trigger an alarm. In practice, MCI never cut off a delinquent creditor, it would rather get him to sign a promissory note - a legally binding promise to pay back the debt over time. Creditors would thus buy some time and the unpaid debt would grow month after month until it would really be worth disappearing in nature with bags of cash.

MCI was so lenient on its bad customers because the Sales Department was eager to show increased revenues. First of all, the account representatives bonus checks depended on the number of new customers they could sign in every year. Some reps were rumored to be taking home seven-figure pay checks. Then the Sales Department per se was under intense pressure from the board of directors and Wall Street to report earnings that would grow each quarter. The executives' bonus plan depended as well on the share price continuing appreciation. When Walter Pavlo first tried to warn the executives of the problems ahead, they told him never to come back with such alarming news. "Nobody cared about reality", commented Pavlo who was forced to invent new tricks every month to maintain bad accounts under artificial life. Fortunately, MCI accounting system was so antiquated that each month millions of dollars were received that nobody could figure out where they should go. These "vagabond payments" would wait until someone would complain and they were properly assigned to their legitimate accounts. Waiting for that to happen, the or "phantom money" as it was as well called, could be used to clean up bad debt accounts. Indeed the following month, the money had to be withdrawn, but the old bad debt would go back on the books as a new balance that was not even due.

Of course, Pavlo was not jailed for these ploys. He was arrested and tried because he averted money for his own purpose with the help of a Canadian citizen called Harold Mann. They had invented a deal where a third party would buy the bad debts to MCI and collect a hefty 36 percent interest to its creditors. Interestingly enough the National Bank of Canada was one of the main lenders to the factoring company that would secure MCI with upfront money. Of course, the interest paid by the factoring company was diverted to a Cayman Island account and MCI never received a penny from this scam. Pavlo just had to move around a bit more "phantom money" to bad debtors. In less than two years he had pocketed $6 millions. Things could have lasted forever, if MCI had not decided to be acquired by one of its most important bad debtors, WorldCom. During the due diligence process, the scam was discovered and the company sued Pavlo. The small crook was punished and went to jail for two years while MCI gladly accepted the WorldCom $30 billion offer and its executives could rip off their stock options and bonus payments for revenues that never existed.

Interestingly enough, WorldCom CEO Bernie Ebbers explained very clearly what happened during all these years of creative accounting and financial fantasy in a percipient letter dated October 1, 1997 that is quoted at length in Stolen Without A Gun (page 222):
"WorldCom and MCI share similar legacies: pioneering the introduction
of competition in the telecommunications marketplace and histories of
innovation, agility and growth. Indeed, these two companies are the
paradigm of the American entrepreneurial spirit."

Walter Pavlo and his co-author Neil Weinberg thought they wrote a book about personal failure and work ethics or lack of ethics. Indeed, they wrote a book that is symbolic of the whole way competition was introduced in the telecommunications market. A well-kept industry where everyone knew every one (there were no more than 200 carriers in the whole world and most of them were doing business locally anyway) was confronted overnight with thousands of payers among whom many swindlers. The arrival of the Internet and the frenzy that accompanied it, raised expectations beyond logic, especially among carriers that did not understand this offspring of the computer industry. The end-result was a giant looting spree in of the telecommunications industry that ruined the lives of many employees and much more small investors. For once though, justice was made and one of the top executives responsible for this mess was punished: Bernie Ebbers is currently serving a 25-year prison term. Bert Roberts has agreed to pay $5.5 million to settle claims by investors who said he should have known that the company's books were falsified, but he never went to jail.

Walter Pavlo, Jr.'s story is an interesting tale, one that was later obscured by the larger fraud that occurred after he left MCI and after MCI merged with WorldCom. It's an important story nonetheless because it provides the reader with insider insight into how public corporations push their employees to "make numbers" and what happens when those employees not only take it too far, but learn how to game the system to their own advantage.

Neil Weinberg does an excellent job telling the story, doing so in a way that doesn't make his co-author, who just happens to be the subject of the book, come off looking like some kind of hero while everyone else looks like a villain. In other words, I felt like what I read was the truth as opposed to a one-sided account of the situation.

Pavlo may have been gone by the time that Bernie Ebbers, Scott Sullivan and their friends were cooking the ledger, but this book provides ample evidence as to how they were able to do so and how they got away with it for so long.

I was a journalist and I covered the WorldCom accounting scandal. It was the little stories like these that were the brush strokes of the larger portrait of fraud. Every company has its "Wally" and reading Pavlo's story is an important reminder of that.

This book I give 5 stars without hesitation. The coauthor is an editor at Forbes Magazine, so the book is a well-written page turner.

As already summarized, the book details the adventurous account of a former MCI executive, who willingly gets involved in an embezzlement scheme in the 90s. Eventually, his deeds get exposed, and his life, in many respects (i.e. professional, family, etc.), is ruined. I was impressed by his self-deprecating honesty. He lets the world see his sinful story perhaps as a lesson to be learned from.

Many people with sins in their past (I guess that includes everybody who is totally honest) have probably thought at one point that they NEVER would have done such-and-such had they only known what the consequences were going to be. This book is about such a person.

When I emailed the author complimenting him on the book, I asked him about the restitution he had to pay. He indicated that it's an obligation he'll be paying for many years to come. "It's a bit bigger than a car payment each month and subject to change depending on my income. It is a burden, but it's a lot better than being in prison."

This was a fast moving, easy to read book that really gave an inside look at some of the pressures the "dot-com" companies were under in the late 90's to "make their numbers."

Here's what I found useful. As an entrepreneur, we all of days when things seem to be going downhill, out of control...making big messes. Reading this book made me feel that on my worst days nothing could have been as bad as being a low-level employee in a company like MCI that had (1) no control over who its salespeople sold to (2) archaic accounting systems (or, really, no systems) that could not keep up with the invoices being generated and (3) no "visionary" at the top of the pyramid making sure that MCI's purpose for existing in the business world was being fulfilled. In other words, the small biz entrepreneur, it seems to me, will always have the upper hand over the slow-moving giant and this book reminds all entrepreneurs that this is true.

All that being said, this is still an interesting if simple story of a guy who let greed take over. It didn't matter much to MCI, which was a mess anyway but he basically ruined his life and that of his family. I really felt for his two young boys as they watched their dad (who they rarely saw anyway for all the hours he worked to be 'successful') go off to prison.

This book brings back so many memories for me, as I worked under Walt Pavlo in MCI's Carrier Financial Services department. Obviously, there are no legitimate excuses for the choices that were made, but I can vouch for the fact that MCI let anyone and everyone on the network in the mid 90's and Walt Pavlo had zero support from above. Walt was a highly intelligent and likeable guy, whom everyone (upper management, sales, the carrier finance deparment, and customers) respected very much. It always amazed me how he could remember every customer's agings in his head, when we had hundreds of carrier customers.

This book is a great read for anyone who works, or has worked, in corporate America. . . especially in the telecom industry.