Video: Feds lay out Ebbers charges

updated 3/2/2004 3:06:15 PM ET 2004-03-02T20:06:15

Former WorldCom CEO Bernard Ebbers was indicted on federal charges in the multibillion-dollar accounting scandal at the telecommunications giant, and his top financial officer pleaded guilty Tuesday and agreed to testify against him.

Conspiracy and fraud charges were filed against Ebbers on Tuesday for his alleged role in the nation’s largest accounting scandal, hours before former chief financial officer Scott Sullivan entered his guilty plea in federal court.

Sullivan admitted to U.S. District Court Judge Barbara Jones that he deceived investors, regulators and Wall Street in a “misguided effort to preserve the company to allow it to withstand what I believed were temporary financial difficulties.”

While the company’s finances deteriorated, “management at the highest level continued to provide unduly optimistic guidance to security firms, analysts and to the investing public,” he told the judge.

Sullivan said in court that he had signed a deal with prosecutors agreeing to cooperate, with the possibility that substantial cooperation could decrease any potential sentence.

“I deeply regret my actions and sincerely apologize for the harm they have caused,” he said.

Sullivan also reached a settlement with the Securities and Exchange Commission.

Sullivan left the courthouse without speaking to reporters. Outside the courtroom, his lawyer, Herb Nathan, said “has taken courageous and honorable actions to try and put this matter behind him,” Nathan said.

The indictment, handed up late Monday and filed Tuesday in U.S. District Court in Manhattan, accused Sullivan, 42, of Boca Raton, Fla., and Ebbers, 62, of Jackson, Miss., of deceiving the public, the SEC, securities analysts and others about WorldCom’s true financial condition.

Ebbers’ attorney, Brian Heberling, declined to comment.

According to the indictment, when the company’s results fell beneath analysts’ expectations in September 2000, Sullivan advised Ebbers that WorldCom should issue an earnings warning to alert investors, but Ebbers refused.

“Ebbers nevertheless insisted that WorldCom publicly report financial results that met analysts’ expectations,” the indictment said.

A month later, the men instructed subordinates “to falsely and fraudulently book certain entries in WorldCom’s general ledger” that misclassified expenses to diminish their draining effect on current profits.

The effort was meant to “satisfy analysts’ expectations, even though Ebbers and Sullivan knew that WorldCom’s true results in fact failed to meet those expectations,” the indictment said.

Ebbers resigned from WorldCom in April 2002, well after its stock price had begun a steady decline and soon after questions began to swirl about the company’s finances. Two months later, WorldCom announced it had uncovered nearly $4 billion in hidden expenses — the beginning of a spiral that would become the largest corporate fraud in U.S. history. The fraud is now estimated at $11 billion.

“America’s economic strength depends on the integrity of the marketplace, a belief in the free flow of information that is reliable,” Attorney General John Ashcroft said at a New York news conference. “It depends on the transparency of financial dealings, and it depends on the accountability of corporate officials.”

WorldCom, parent of the nation’s second biggest long-distance telephone company, filed for bankruptcy July 21, 2002. In a bid to heal its reputation, WorldCom changed its name to MCI last April and moved its headquarters from Jackson, Miss., to Ashburn, Va. The company expects to emerge from bankruptcy protection within two months.

Four former company executives, including controller David Myers, have pleaded guilty to criminal charges in the Justice Department’s fraud investigation and are helping federal prosecutors.

Sullivan, who was arrested in August 2002, had been scheduled to go to trial April 7.

A WorldCom report issued in June said Ebbers fostered a poisonous corporate culture and was “aware, at a minimum, that WorldCom was meeting revenue expectations through financial gimmickry.”

A second report, by former Attorney General Richard Thornburgh for a bankruptcy judge in New York, described a corporate culture dominated by Ebbers and Sullivan “with virtually no checks or restraints placed on their actions by the board of directors or other management.”

Last year a federal judge in New York approved a $750 million settlement between WorldCom and the SEC, designed to repay investors who lost money in the fraud. WorldCom also has agreed to corporate reforms, including a court-appointed monitor and regular audits.

Ebbers and business associates started Long Distance Discount Service two decades ago in Hattiesburg, Miss. For the next 12 years, it snapped up communications companies, including IDB WorldCom, and in 1995 adopted the name WorldCom Inc., with Ebbers as chief executive.

WorldCom merged with MCI in 1997 and planned to merge with Sprint in 1999 until the deal was called off.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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