- The Washington Times - Thursday, February 24, 2005

From combined dispatches

The former chairman of WorldCom Inc. testified yesterday that finance chief Scott Sullivan told him in 2002 that chief executive Bernard Ebbers did not know about the company’s improper accounting entries.

Bert Roberts, who held the title of honorary chairman of the board at the time, said he questioned Mr. Sullivan on June 20, 2002, as WorldCom’s massive accounting fraud was beginning to come to light.

“I asked Scott if Bernie knew,” Mr. Roberts said. “And Scott’s answer to me was that Bernie did not know of the journal entries.”

On cross-examination, prosecutor David Anders stressed the phrase “journal entries” — suggesting that Mr. Sullivan was referring only to the specific entries made by lower-level accountants, rather than to the broader fraud.

Mr. Roberts took the stand as defense lawyers continued to present their case on behalf of Mr. Ebbers, who is accused of orchestrating the $11 billion accounting fraud that drove WorldCom into bankruptcy in 2002.

Mr. Sullivan testified earlier in the trial that Mr. Ebbers was fully aware of the fraud and that he repeatedly told the CEO he thought the accounting was improper.

He also testified, during questioning by the defense, that he did not recall whether Mr. Roberts had asked him in 2002 whether Mr. Ebbers knew about the improper accounting.

Earlier yesterday, former WorldCom internal auditing chief Cynthia Cooper described how she and others gradually uncovered that accountants were hiding expenses by classifying them as capital expenditures, a type of asset.

She also spoke of a conversation in which Mr. Sullivan became angry at her for taking questions about accounting to Arthur Andersen, WorldCom’s outside auditor, rather than to accounting officials inside the company.

“At that point,” Miss Cooper said, referring to the spring of 2002, “I would say he was angry and aggravated.”

In other court action yesterday:

• A former executive who helped run a massive fraud at rehabilitation giant HealthSouth Corp. said yesterday then-CEO Richard Scrushy told him to “hang in there” during the scheme and promised: “We’re not going to have to do this forever.”

The testimony by Ken Livesay came as the former assistant controller, who has pleaded guilty in the case, spent a second day on the stand at Mr. Scrushy’s trial on corporate fraud charges.

• Tyco International Ltd.’s former head of finance testified yesterday he never saw that millions of dollars in special bonuses for former top executives L. Dennis Kozlowski and Mark H. Swartz were ever approved by the company’s compensation committee.

Under questioning by prosecutors, Mark D. Foley, the Bermuda conglomerate’s former senior vice president of finance, also said he wasn’t aware of any documents being provided to the committee that detailed the special bonuses paid to Mr. Kozlowski, then Tyco’s chief executive, and Mr. Swartz, its chief financial officer.

• The criminal fraud trial of former Enron Corp. officials Kenneth Lay, Jeffrey Skilling and Richard Causey will start in January 2006.

U.S. District Judge Sim Lake said at a hearing in Houston yesterday that jury selection in the trial will start Jan. 17.

“Although I would have preferred to start the trial in September, I feel it is more important for all defendants to be adequately represented,” Judge Lake said.

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