- The Washington Times - Tuesday, February 8, 2005

NEW YORK (AP) — The former finance chief of WorldCom testified yesterday that then-CEO Bernard Ebbers repeatedly ignored evidence that company finances were deteriorating and simply said, “We have to hit our numbers.”

Scott Sullivan said he told Mr. Ebbers the only way to meet Wall Street estimates for the third quarter of 2000 would be to book improper accounting entries to boost revenue and cover up expenses.

“He looked at the information, and he didn’t say a lot,” Mr. Sullivan said. “He looked up and said, ‘We have to hit our numbers.’ ”

Sullivan said he interpreted the remark as an instruction to go ahead with the improper entries. When accountants revised the third-quarter figures to meet Wall Street estimates, Sullivan said he showed Mr. Ebbers the new numbers.

“He said, ‘We have to hit our numbers this quarter,’ and that’s all he said,” Sullivan testified.

Later, after two accountants threatened to quit, Sullivan, who has pleaded guilty in connection with the fraud, said Mr. Ebbers told him: “We shouldn’t be making these people make these adjustments.”

The government contends the fraud continued through 2000, 2001 and into 2002, all at Mr. Ebbers’ direction.

Sullivan, the star government witness at Mr. Ebbers’ fraud trial, said he confronted Mr. Ebbers beginning in August 2000, when the burst of the dot-com bubble had contributed to sharply lower revenue growth for WorldCom.

He said Mr. Ebbers twice rejected lowering third-quarter projections, first saying WorldCom could not do it without explaining the circumstances and then saying the company could wait to lower forecast until the next quarter.

Sullivan, who took the stand Monday, became the first government witness out of nine so far to directly implicate Mr. Ebbers in the $11 billion WorldCom accounting fraud, saying Mr. Ebbers had worked with him in cooking the company’s books.

Yesterday, prosecutors began leading Sullivan through testimony about each of the quarters in which the fraud is reputed to have occurred, beginning with the summer of 2000.

At the time, with dot-com clients vanishing, WorldCom revenues were worsening quickly, and expenses for so-called “line costs” — the fees WorldCom paid smaller telephone carriers — were soaring.

But Sullivan said Mr. Ebbers regularly pressured him to meet revenue and earnings targets to please Wall Street.

“The source of the pressure was Bernie, and the source of the pressure was also the marketplace,” Sullivan said.

Prosecutors have said Mr. Ebbers was obsessed with keeping the company in high regard on Wall Street, at least in part to keep its stock price high and protect personal loans that were backed by WorldCom shares.

Sullivan said WorldCom adjusted some of its revenue figures, such as credits for overbilling, with the goal of meeting Wall Street analysts’ growth expectations.

Sullivan testified he presented monthly revenue reports to Mr. Ebbers in mid-2000, and Mr. Ebbers used phrases like “This is horrible. This is terrible results,” to express his dissatisfaction.

Mr. Ebbers is accused of fraud, conspiracy and submitting false filings to the Securities and Exchange Commission — in effect overseeing the enormous fraud that sank WorldCom into bankruptcy in 2002. The company changed its name to MCI Inc. after emerging from Chapter 11 last spring.

• In another corporate trial yesterday in Birmingham, Ala., top HealthSouth Corp. executives were reported to have considered removing Richard Scrushy as chairman, but decided against it in the final months of what prosecutors say was a huge fraud conspiracy at the rehabilitation giant.

Bill Owens, who was HealthSouth’s chief executive officer at the time, testified in Mr. Scrushy’s trial that in the fall of 2002 he met on a Sunday afternoon with then-Chief Financial Officer Tadd McVay and general counsel Bill Horton. Mr. Owens said the company was under “pressure” from the outside owing to Mr. Scrushy’s stock transactions, which had drawn shareholder lawsuits and a government probe.

HealthSouth’s board finally fired Mr. Scrushy as chairman in March 2003 after the government filed a civil suit accusing the company and Mr. Scrushy of a massive accounting fraud.

Mr. Scrushy, who later was charged criminally, claims Owens and other HealthSouth executives hid the $2.7 billion fraud from him, lying to him for years as they climbed the corporate ladder.

Owens is among 15 former HealthSouth executives who have pleaded guilty in the fraud.

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