- The Washington Times - Tuesday, March 2, 2004

WorldCom Inc. founder Bernard Ebbers was indicted yesterday on charges that he ordered his subordinates to carry out the biggest accounting fraud in history.

The surprise move against Mr. Ebbers makes him the highest-placed target to date in the Justice Department’s battle against corporate crime. Testifying against Mr. Ebbers will be Scott Sullivan, the financial whiz who engineered the $11 billion fraud that cost investors and WorldCom employees billions of dollars in retirement savings.

Conspiracy and fraud charges were filed against Mr. Ebbers before the U.S. District Court in Manhattan hours before Mr. Sullivan, WorldCom’s former chief financial officer, entered a guilty plea as part of a cooperation agreement with prosecutors.

According to the indictment, the fraud began in September 2000 when Mr. Sullivan informed Mr. Ebbers, then chief executive of the company, that deteriorating finances would prevent them from meeting Wall Street’s earnings expectations, and advised him to issue a warning to investors.

Mr. Ebbers “insisted” that WorldCom must continue to meet expectations, and ordered Mr. Sullivan to “close the gap” by manipulating the company’s books to improve the appearance of earnings, the indictment says.

In what would turn out to be the largest accounting gimmick in history, the two officers instructed subordinates to shift billions of dollars of lease expenses for the use of other company phone lines from the company’s operating account into its capital account, where they would not appear so much to drain earnings.

Mr. Sullivan, who was scheduled to go to trial on April 7, told the district court that the scheme started out as a “misguided effort to preserve the company to allow it to withstand what I believed were temporary financial difficulties.”

But even months later when it became clear that WorldCom’s difficulties were far from temporary — and in fact led to its record-setting bankruptcy in July 2002 — “management at the highest level continued to provide unduly optimistic guidance,” he said. “I knew what I was doing was wrong.”

As part of the guilty plea accepted by the court, Mr. Sullivan will sell his $13 million home in Boca Raton, Fla., to help provide restitution for his crimes, which carry a maximum jail sentence of 25 years and a fine of as much as $2.25 million. Mr. Ebbers faces the same penalties if convicted.

Reid H. Weingarten, Mr. Ebbers’ lawyer, said the 62-year-old former milkman, bouncer and basketball coach who engineered WorldCom’s meteoric rise through a series of huge acquisitions and mergers, did not act with criminal intent.

“Bernie Ebbers never sought to mislead investors, never sought to improperly manipulate WorldCom’s numbers, never improperly took any money and never sought to hurt the company he built,” Mr. Weingarten said in a statement.

WorldCom, based in Jackson, Miss., acquired MCI, the second largest long-distance company based in Ashburn, Va., in 1998 when it was one of the nation’s fastest-growing companies and a darling of Wall Street.

In April, it changed its name to MCI and moved its headquarters to Ashburn hoping to discard WorldCom’s tainted reputation and get a fresh start in business. The company, which still holds lucrative phone service contracts with the government despite howls of protests from competitors, is expected to emerge from bankruptcy within months.

Mr. Ebbers resigned from WorldCom in April 2002, when the company’s stock was in full retreat and two months before the scandal was revealed in an announcement that stunned the investing world.

WorldCom’s new management said it had uncovered nearly $4 billion in hidden expenses — an unprecedented amount that was to rise in a series of startling announcements to $11 billion.

Attorney General John Ashcroft at a news conference announcing the indictment in New York yesterday said more than 660 corporate securities law violators like Mr. Ebbers have been charged in the last two years, resulting in more than 250 convictions.

Despite the large number of prosecutions by Justice and the Securities and Exchange Commission, opinion polls show that the public believes corporate executives are not being adequately punished — apparently in part because the highest ranking executives like Mr. Ebbers until recently had remained untouched.

Mr. Ebbers’ indictment comes two weeks after the indictment of Enron Corp.’s No. 2 man, former chief executive Jeffrey Skilling.

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