• 28
  • September
    2011

A former WorldCom executive brought a suit in the federal Court of Claims arguing that apparent stock losses were in fact theft losses under Georgia law. This distinction would have paved the way for an income tax refund for the former executive of about $2,000,000. Having the loss characterized as a theft loss rather than a capital loss, would have allowed him to carry it back over the five preceding years, during which time he was still receiving a large income as a WorldCom executive.

When the executive ended his employment with WorldCom in 1999 he was forced to exercise all of his stock options, he was left with $7.7 million worth of WorldCom stock. He held onto the stock until 2002 when he sold it at a loss of more than $6.7 million dollars. The former executive claims that other senior WorldCom executives engaged in misrepresentations to encourage him to hold onto the stock, and that this constituted theft. The court did not agree with his argument.

The former executive argued that he was personally told by the WorldCom CEO that the company was doing very well. Because the former executive was arguing that the losses were a result of theft by WorldCom rather than a typical capital loss, the defendant's argument was fairly simply. They said that WorldCom had not actually received anything from the former executive, so there could not be any demonstration that they had taken or appropriated anything.

The court determined that the former executive was not entitled to categorize the losses as losses by theft because WorldCom never had any intent to deprive the former executive of any value. The stocks were completely in control in the former executive after he exercised his options, and the goal of the company and its remaining executives was to increase the value of the stock. While they may not have been successful, it was not demonstrated that their intent was to take any money from the former executive.

Source: Forbes "WorldCom Stock Losses Not Considered Theft - Court of Claims Rules," Peter Reilly, Sept. 27, 2011