EFL...
Bernard Ebbers, who built WorldCom from a humble Mississippi long-distance firm into one of the nation's biggest telecommunications conglomerates, was convicted Tuesday of engineering the colossal accounting fraud that sank the company. A federal jury in Manhattan deliberated eight days before returning guilty verdicts on all counts — one count of conspiracy, one count of securities fraud and seven counts of false regulatory filings. The crimes carry up to 85 years in prison. When the verdict was read, Ebbers' face reddened. His wife, Kristie, and other family members broke into tears. Afterward, Ebbers and his wife hailed a taxi outside the courthouse and left without speaking to reporters. "We're all devastated," said defense attorney Reid Weingarten. "It's very sad it came out the way it did." Sentencing was set for June 13. Weingarten said an appeal was planned, adding: "We are obviously extremely disappointed with this verdict, but the fight will continue."
The conviction comes more than two years after an internal auditor began asking questions about curious accounting at WorldCom, touching off a scandal that eventually unearthed $11 billion in cooked books. Prosecution testimony at the six-week trial portrayed Ebbers, 63, as obsessed with keeping WorldCom's stock price high, and panicked about $400 million in personal loans that were backed by his shares in the company. Ebbers himself took the witness stand late in the trial, insisting that he was unfamiliar with the details of accounting and knew nothing about the fraud taking place on his watch.
Riiiiight!
The star witness against him was Scott Sullivan, the former finance chief, who claimed Ebbers repeatedly ordered him to "hit our numbers" — a command, Sullivan said, to falsify the books to meet Wall Street expectations. With the entire telecom industry suffering a dot-com hangover, the fraud was driven by soaring "line costs" — the fees WorldCom paid to smaller local telephone carriers to use their networks. Prosecutors said the fraud stretched from late 2000 until early 2002, sometimes amounting to nearly $1 billion per quarter in hidden expenses and improperly recognized revenue. Pressure from the loans, the money he stood to lose and the power of the CEO's job combined to form a "perfect storm of corruption" that drove Ebbers to commit fraud, prosecutor William Johnson said in his closing argument.
Ebbers gambled by taking the witness stand. He directly disputed the testimony of Sullivan, saying he became aware of the fraud only in the summer of 2002, after he was asked to leave WorldCom. The conviction completes a staggering fall for Ebbers, who took a small long-distance company in Mississippi and merged with or acquired ever-larger companies, earning him accolades and the nickname Telecom Cowboy. He still faces civil litigation, including from the company, which backed up his $400 million in personal loans when Bank of America demanded more and more collateral as the stock price fell. WorldCom, which was based in Clinton, Miss., was driven into bankruptcy — the largest in U.S. history — in the summer of 2002. It has since re-emerged as MCI Inc., based in Ashburn, Va. The company struck a $750 million settlement with federal regulators to repay aggrieved investors, a small sum compared to the tens of billions of dollars of market capitalization that evaporated in the scandal. Twelve former directors of the company, plus some investment banks that underwrote WorldCom securities and auditing firm Arthur Andersen, also face a civil trial brought by angry investors. That trial is set for late March. |
