- The Washington Times - Friday, January 28, 2005

NEW YORK (AP) — WorldCom CEO Bernard Ebbers fretted in 2001 as his company’s stock faltered that everything he had worked for “will basically be wiped out,” a former WorldCom executive testified yesterday.

And as WorldCom accountants were forced to hide billions of dollars in expenses, Mr. Ebbers said at the same meeting that “extraordinary things had to be done” to turn the company around, former Controller David Myers told jurors.

The testimony from Myers, who has already pleaded guilty to fraud, was designed to bolster the government’s case that Mr. Ebbers was aware of shady accounting at WorldCom and deeply concerned about its stock price.

The former chief executive officer is accused of orchestrating the $11 billion accounting fraud that drove WorldCom into bankruptcy in 2002.

Myers recounted a June 2001 meeting of high-ranking WorldCom executives to discuss out-of-control line costs — the fees WorldCom paid to local telephone carriers — that were threatening the company’s bottom line.

By that point, Myers said he had already been ordered by Chief Financial Officer Scott Sullivan to hide the expenses by creating false entries for assets on WorldCom’s balance sheet.

At the meeting, Myers said, Mr. Ebbers referred to margin calls he was receiving from banks for loans he had taken out that were backed by WorldCom stock.

He remembers Mr. Ebbers saying that if the stock slid below the midteens, “My margin calls are called and everything I’ve worked for since I’ve joined WorldCom will basically be wiped out.”

At the same meeting, without specifically referring to accounting tricks, he said Mr. Ebbers said “while the company was in extraordinary times, extraordinary things had to be done.”

In addition, Myers said Sullivan told him twice in 2001 that Mr. Ebbers understood, as Myers put it, “the magnitude of what we were doing on the revenue side and the line-cost side.”

The testimony appeared to be the most damaging yet against Mr. Ebbers, whose lawyers claim Mr. Ebbers left accounting matters to Sullivan and that Sullivan masterminded the fraud.

Mr. Ebbers is charged with fraud, conspiracy and making false filings to the Securities and Exchange Commission. The charges carry up to 85 years in prison.

Myers, one of five WorldCom executives who have pleaded guilty and are cooperating with the government, described for jurors taking disappointing financial numbers to Sullivan quarter after quarter in 2001 and 2002.

Time after time, he said, Sullivan ordered him to balance out soaring line-cost expenses with false entries for assets that WorldCom never acquired, most under the heading of “property, plants and equipment.”

As WorldCom’s troubles deepened, Myers said Sullivan told him to cover up ever-growing amounts of expenses — $610 million in the second quarter of 2001, $743 million in the third, $941 million in the fourth.

Prosecutors contend Mr. Ebbers directed the fraud to make WorldCom’s financial results line up with Wall Street expectations, thereby keeping its stock price high.

The adjustment in the third quarter of 2001, for example, turned a loss by WorldCom of 2 cents per share into a gain of almost 17 cents.

Myers returns to the witness stand Monday. Sullivan, the star witness for the government, testifies later.

In another trial arising out of corporate scandal, an accountant testifying yesterday in the case of fired HealthSouth chief Richard Scrushy in Birmingham, Ala., gave jurors the recipe for a huge fraud: Take legitimate numbers from clinics and hospitals, add bogus amounts at headquarters, and blend it all together.

“That’s where they cooked the books,” said Harvey Kelly, who was part of a team of experts brought in by HealthSouth’s law firm to unravel the scheme after the fact.

Mr. Kelly didn’t tie Mr. Scrushy to the fraud — he just explained how it happened at the rehabilitation chain with medical centers nationwide.

Government and defense lawyers agree that a fraud occurred, and Mr. Kelly said the overstatements amounted to $2.7 billion over seven years beginning in mid-1996. For the period, HealthSouth’s true net income was only $1.7 billion, he said, or about 40 percent of what the company reported.

The government claims Mr. Scrushy was behind the fraud, enriching himself as the inflated earnings boosted HealthSouth shares. The defense contends the fraud was carried out by underlings who lied and hid the scheme from Mr. Scrushy for years.

Mr. Scrushy is on trial on charges including conspiracy, fraud, money laundering, obstruction of justice, perjury, and false corporate reporting in the first test of the 2002 Sarbanes-Oxley Act against a CEO.

Mr. Scrushy, 52, could get what amounts to a life sentence if convicted.

Prosecutors also are seeking $278 million in his personal assets including vintage cars, boats, an airplane, jewels and bronze statues.

The government has given varying estimates on the exact size of the fraud, ranging from $2.64 billion to $2.74 billion.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide