Episode Details

In 2001, three signals in WorldCom's public filings identified the fraud before any regulator, analyst, or auditor acted on it. Capital expenditure growth moving opposite to every telecom peer. A line cost ratio holding flat with statistical precision across quarters where every market variable should have produced volatility. Cash flow payments going to other carriers — consistent with operating expenses, not capital investment.

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This episode is the due diligence framework a GP or LP should apply to any company whose reported earnings depend on a cost ratio management monitors closely — and whose capex growth cannot be explained by visible operational investment.

We cover: the acquisition currency dependency that made WorldCom's stock price a prerequisite for its business model — the moment the Sprint merger died and the organic business couldn't sustain the growth rate the multiple implied — the specific mechanism Scott Sullivan used to move $3.8 billion in line costs off the income statement — the three diagnostic ratios that identified the fraud from the public 10-Q — and why Arthur Andersen signed off while the board approved $400 million in personal loans to Ebbers.

Plus the active signal: where this exact structure — auditor capture plus board conflict of interest plus a key ratio managed to a target — is running in public markets today.

The Forensic Data Sheet is on Substack. Link in bio.

Every collapse has a pattern. We dissect it. Layer by layer.