- The Washington Times - Thursday, January 27, 2005

From combined dispatches

A former WorldCom Inc. controller yesterday told a federal jury in the fraud trial of ex-Chairman Bernard Ebbers that the company kept internal records documenting how it falsified accounting entries.

David Myers testified that the internal WorldCom document reflected expenses the company reported to the Securities and Exchange Commission and the actual expenses.

The figures submitted to the SEC understated those expenses, he said.

“The entries made in the income statement were inaccurate,” Mr. Myers said, referring to the expense figures WorldCom reported to the SEC.

Mr. Myers is one of five former WorldCom employees who pleaded guilty to fraud and one of two, along with Scott Sullivan, the former finance chief, who will directly implicate Mr. Ebbers in the scheme, prosecutors say. Mr. Ebbers is accused of directing Mr. Sullivan and Mr. Myers to inflate revenue and hide expenses to prop up the company’s stock.

Mr. Ebbers is charged with orchestrating an $11 billion accounting fraud that led to the largest bankruptcy in U.S. history. He contends Mr. Sullivan was the mastermind of the scheme and kept him in the dark. Defense lawyers say Mr. Sullivan and Mr. Myers are lying in a bid for leniency at sentencing.

Under questioning by Assistant U.S. Attorney David Anders yesterday, Mr. Myers began his account by admitting his role in the fraud. Mr. Myers, who pleaded guilty on Sept. 26, 2002, faces up to 20 years in prison.

“I participated in an accounting fraud at the company,” he told the jury of six men and six women. “The company was recording entries that were not right.”

Mr. Myers, of Madison, Miss., testified that he joined WorldCom in 1995 and became controller in 1997. He oversaw a staff of 580, including the accounting department, and reported directly to Mr. Sullivan.

Mr. Myers testified that Mr. Sullivan instructed him in March 2001 to alter a monthly internal budget report to exclude line costs, the fees paid to other phone companies for use of their transmission lines. Prosecutors say WorldCom improperly reported the line costs in the capital budget.

According to Mr. Myers, Mr. Sullivan told him this “was the first time we capitalized line costs.”

Mr. Myers said Mr. Sullivan didn’t explain why they needed to do this, although, he said, Mr. Sullivan wanted to hide the entries.

“We didn’t want to show it,” Mr. Myers testified.

Mr. Ebbers is charged with one count each of securities fraud and conspiracy and other charges. If convicted, he faces up to 25 years in prison. WorldCom filed for bankruptcy in 2002 after losing $184.6 billion in value from its high on June 18, 1999. The company emerged from bankruptcy as Ashburn, Va.-based MCI.

In other court action yesterday:

• A lawyer for former Tyco International Ltd. Chief Executive Officer L. Dennis Kozlowski, on trial for stealing millions of dollars of bonuses, said his client did not hide his compensation from the company.

Mr. Kozlowski, 58, and ex-finance chief Mark Swartz, 44, are accused of stealing $150 million of unauthorized bonuses and defrauding shareholders by selling stock they inflated by misrepresenting Tyco’s financial condition. They are facing the charges for a second time because of a mistrial in April.

• A former HealthSouth Corp. finance chief, testifying at the fraud trial of company founder Richard Scrushy, said his boss never told him to break the law to address a revenue shortfall.

Aaron Beam, 61, who has pleaded guilty to participating in a $2.7 billion accounting fraud at HealthSouth, testified that Mr. Scrushy told him to “fix” the 1996 shortfall. During cross-examination yesterday, defense lawyer James Parkman asked Mr. Beam whether Mr. Scrushy ever used the words “unlawful,” “illegal,” or “wrong.”

“He did not use the word unlawful,” Mr. Beam told federal jurors in Birmingham, Ala. “He did not use the word illegal. He did not use the word wrong.”

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