informa
/
3 MIN READ
News

Former WorldCom CEO Pleads Not Guilty

Bernie Ebbers pleaded innocent to federal charges that he conspired with his CFO to cook the company's books.
NEW YORK (AP) -- Former WorldCom CEO Bernard Ebbers pleaded innocent Wednesday to federal charges that he conspired with his chief financial officer to cook the company's books in the biggest corporate fraud in American history.

Ebbers surrendered to the FBI early Wednesday, a day after the financial officer, Scott Sullivan, pleaded guilty and agreed to testify against his former boss.

Ebbers' lawyer, Reid Weingarten, insisted Ebbers will clear his name at trial.

"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," Weingarten said Tuesday after an indictment was filed against his client.

Sullivan, of Boca Raton, Fla., agreed to testify to trim a potential 25-year prison sentence that could result from charges of conspiracy to commit securities fraud, securities fraud and falsely filing with the SEC.

He told U.S. District Judge Barbara Jones during his plea that he and others gave unduly optimistic guidance to security firms, analysts and the investing public.

"I took these actions, knowing they were wrong, in a misguided effort to preserve the company to allow it to withstand what I believed were temporary financial difficulties," Sullivan said.

Allegations of the $11 billion fraud at WorldCom had come amid a series of corporate scandals raising questions about the honesty of bookkeeping in U.S. companies.

Prosecutors and defense lawyers agreed that Ebbers, 62, would be released on $10 million bond, secured by his home in Mississippi. He was to surrender his passport and have his travel restricted to New York City, Mississippi, and Washington, D.C.

Ebbers was portrayed in the indictment as a hands-on administrator who "carefully scrutinized" every internal report on WorldCom's revenue and who "demanded that his copy be printed on a special 'green-bar' computer paper to facilitate his review."

In September 2000, the company's results had fallen beneath analysts' expectations but "Ebbers nevertheless insisted that WorldCom publicly report financial results that met analysts' expectations," the indictment said.

U.S. Attorney General John Ashcroft announced the indictment and plea, saying "America's economic strength depends on the integrity of the marketplace."

"No one," Ashcroft said, "stands above the law."

Others, too, saw lessons for those powerful executives who might hide crucial information from investors.

"This was a misstatement of earnings, and the misstatement was no mistake," said Pasquale D'Amuro, FBI assistant director in charge of the New York office.

Sullivan also settled civil charges in the case, said the director of the Securities and Exchange Commission's Division of Enforcement, Stephen M. Cutler.

"No matter how high executives climb on the corporate ladder, they will never be above the law," he said.

The indictment and a statement Sullivan read in court described a company that tried desperately to hide its worsening finances from the public beginning in September 2000.

The indictment presented a softer image of Sullivan, saying he advised Ebbers of the deteriorating conditions and urged him to issue an "earnings warning" to alert the public.

But Ebbers refused, the indictment said, and both men then agreed to enlist subordinates on a campaign of fraud to conceal the telecommunications company's financial condition.

The indictment said they agreed to tell subordinates "to falsely and fraudulently book certain entries in WorldCom's general ledger, which were designed to increase artificially WorldCom's reported expenses."

The effort was meant to "satisfy analysts' expectations, even though Ebbers and Sullivan knew that WorldCom's true results in fact failed to meet those expectations," the indictment said.

Thus, "management at the highest level continued to provide unduly optimistic guidance to security firms, analysts and to the investing public," Sullivan said.

Lawyers in the case said Sullivan had agreed to sell his lavish $15 million Boca Raton estate, which has a movie theater and six Jacuzzis, and use the proceeds to reimburse victims.

Sullivan's sentencing was set for June 2, though the date is likely to be postponed until his cooperation is finished.

Editor's Choice
Brian T. Horowitz, Contributing Reporter
Samuel Greengard, Contributing Reporter
Nathan Eddy, Freelance Writer
Brandon Taylor, Digital Editorial Program Manager
Jessica Davis, Senior Editor
Cynthia Harvey, Freelance Journalist, InformationWeek
Sara Peters, Editor-in-Chief, InformationWeek / Network Computing