Former WorldCom chief Bernard Ebbers testified Tuesday he “just didn’t see” glaring irregularities in internal financial papers that he reviewed while the company’s $11 billion fraud was under way.
In a daylong cross-examination by a federal prosecutor, Ebbers gave his most detailed denial yet that he had anything to do with the improper accounting that bankrupted the company.
Ebbers was presented with a WorldCom budget report that showed so-called line cost expenses at $732 million in September 2000, only half the $1.4 billion budgeted by the company.
The report was doctored, reflecting adjustments made by WorldCom accountants to cover up line costs that were much higher that summer than the company expected.
Prosecutor David Anders asked Ebbers whether he noticed the gap.
“If I would have noticed that, we would not be here today,” Ebbers responded. The former CEO said he paid more attention to other expenses in the document, such as administrative costs.
Ebbers took the witness stand in his own defense Monday and emphatically denied knowing anything about the accounting fraud while it was taking place. The defense says it was the work of finance chief Scott Sullivan.
On Tuesday, under six hours of intense and sometimes contentious questioning by lead prosecutor Anders, Ebbers expanded the denial to include each quarter of the fraud, which ended in 2002.
When Anders showed him a doctored report that reflected line costs dropping to from $1.6 billion in October and November 2000 to just $858 million in December, Ebbers said: “I just didn’t see it.”
Presented with a report with a similar gap for the first quarter of 2001 — although this report did not include budget figures — Ebbers said he probably just tossed it in the trash.
“So it’s your testimony,” Anders said at the end of the day, “that WorldCom reduced its line costs through adjustments of more than $2 billion — and you had no idea?”
“That’s correct,” Ebbers said.
Sullivan, who testified for the government earlier in the case, claims Ebbers was obsessed with hitting Wall Street earnings and revenue targets and pressured him each quarter into committing the fraud.
The former finance chief said Ebbers attended a meeting during the spring of 2001 in Ashburn, Va., in which he was told that line costs were spiraling out of control.
On cross-examination Tuesday, Ebbers said he believed he was invited to that meeting “to do my cheerleader thing and give the troops a little pep talk.”
Pressed about why they need a pep talk, Ebbers said Sullivan had told him there was a “lack of harmony” among line cost employees — not that line costs were alarmingly high.
Earlier Tuesday, Anders sought to show Ebbers felt intense pressure as his company’s stock fell steadily, threatening hundreds of millions of dollars of his personal loans.
The prosecutor walked Ebbers through a series of margin calls issued by Bank of America Corp. in 2000, demanding more collateral for the loans as the stock fell.
Ebbers eventually was forced to pledge all of his WorldCom stock to the bank.
“That didn’t feel good, did it, Mr. Ebbers?” Anders asked.
“Margin calls don’t ever feel good,” Ebbers said.
Anders appeared to be trying to seek support for his argument that Ebbers, worried about the loans, pressured WorldCom accountants to falsify the books and submit rosy numbers to Wall Street.
Under questioning from his own lawyer, Ebbers chuckled occasionally, sometimes sprinkling Southern phrases into his answers. On cross-examination Tuesday, he appeared less comfortable and more combative, often saying he did not recall specific conversations or seeing certain documents.
As the stock fell in 2000 and 2001, WorldCom guaranteed Ebbers’ loans, amounting to more than $350 million. Ebbers said he could have sold WorldCom stock to pay off the bank, but was instructed by WorldCom’s board not to sell.
“It’s terrible” for a company to loan its CEO so much money, Ebbers acknowledged.
Ebbers also conceded under questioning from the prosecutor that he was “fairly detail-oriented” as a manager, but only “in the areas that I paid particular attention to.”
His lawyers have argued Ebbers was uncomfortable with accounting and finance, and left those matters to Sullivan.
Anders showed Ebbers documents that Ebbers had reviewed during his time as CEO, including a complex 2001 budget document that broke down revenue projections by sales channel and account representative.
Ebbers also admitted he focused on certain expenses. “It was important to me to supervise the parts of the company that I was responsible for,” Ebbers said.
Anders replied, “You’re the CEO of the company, so at some level, you’re responsible for the entire company.”
Ebbers also sharply denied a suggestion by the prosecutor that he once tried to withhold WorldCom business from Bank of America unless the bank agreed to give him more flexibility on repaying personal loans.
Anders showed jurors an e-mail from Sullivan to Ebbers in March 2002 in which Sullivan proposes awarding 40 percent of a $700 million debt transaction to Bank of America.
Ebbers scribbled in the margin: “Only use BofA if we have to?”