Ex-WorldCom CEO Ebbers charged with securities fraud

9.40am


NEW YORK - The US government said it charged Bernie Ebbers, former chief executive of WorldCom Inc , with securities fraud stemming from the $11 billion accounting scandal that sent the phone company into bankruptcy.

The indictment, unsealed in Manhattan, followed a guilty plea earlier in the day by ex-WorldCom finance chief Scott Sullivan, a key Ebbers lieutenant who admitted to conspiring to falsifying the company's accounts.

Sullivan is expected to be a key witness in the government's case against Ebbers, who the government says demanded that WorldCom's financial results meet Wall Street's expectations demand.

WorldCom's collapse marked the biggest ever US bankruptcy, and Ebbers is the biggest figure to date to face prosecution in the wave of scandals that roiled the US corporate world following the stock market boom.

Ebbers indictment comes on the heels of government charges brought last month against Jeff Skilling, the former chief executive of Enron, which also fell into bankruptcy in a massive bookkeeping scandal.

Ebbers was charged with conspiracy, fraud and making false statements, according to court documents. He will be arraigned on Wednesday.

WorldCom, which has since changed its name to MCI, last summer agreed plan to pay a record $750 million to settle fraud charges in its historic accounting scandal,

Sullivan's guilty plea covered charges of conspiracy, fraud and making false statements about WorldCom's financial health to regulators. He had been scheduled to go on trial in April.

"As CFO at WorldCom I participated with other members of WorldCom to conspire to paint a false and misleading picture of WorldCom's financial results," Sullivan, 42, said in federal court in Manhattan.

In order to meet Wall Street financial expectations, Sullivan said he and other WorldCom officials inflated revenues and reduced expenses, masking the company's true financial problems.

The accounting scandal grew from a corporate culture in which Ebbers and Sullivan ran the company unchecked by a board of directors filled with personal friends and business associates of Ebbers, independent examiners have said.

WorldCom epitomized the telecommunications and internet euphoria of the 1990s, using a booming stock price to fuel an acquisition spree.

The three charges against Sullivan, which together carry a jail sentence of up to 25 years and monetary fines, were included in a new indictment hammered out by Sullivan's attorneys and federal prosecutors in the early hours of Tuesday.

The indictment supercedes earlier criminal charges against Sullivan, and resolves charges filed against him by the US Securities and Exchange Commission, according to Sullivan's attorney, Irvin Nathan, of law firm Arnold & Porter in Washington, D.C.

As part of the settlement with the SEC, Sullivan is barred from being an officer in a publicly traded company. Nathan said the fines that Sullivan faces could be "very sizeable."

Federal Judge Barbara Jones said Sullivan's sentence would depend on the extent of his cooperation in the case against Ebbers, who resigned from the company in April 2002, as its financial problems began to emerge.

Attorney General John Ashcroft held a news conference in New York to announce the actions.

WorldCom filed for bankruptcy protection in July 2002, but hopes to emerge this spring after shedding all but a fraction of the $41 billion in corporate debt and overhauling most of the company.

Sullivan's cooperation on the Ebbers investigation marks a coup for prosecutors trying to link the brash executive, who has denied any knowledge of the financial "gimmickry" that an independent examiner said inflated WorldCom's revenues.

Ebbers, who was an early investor in the company, in 1985 became chief executive of long-distance telephone company LDDS, which later became WorldCom. The company changed its name to WorldCom in 1995 and merged with MCI in 1998.

Ebbers, who often began corporate meetings with a prayer, built WorldCom into the nation's No. 2 long-distance carrier through a string of 60 acquisitions.

Last year, Oklahoma charged WorldCom, Ebbers and five other former executives with violating state securities laws by knowingly giving false information to investors.

The state attorney general in November dropped the charges against Ebbers, but said he would likely refile a complaint this month.

Reid Weingarten, an attorney representing Ebbers, was not immediately available for comment Tuesday morning. In the past, he has denied any wrongdoing by Ebbers.

- REUTERS

US Indicts Ex-WorldCom CEO:
Read the Ebbers Indictment at Finlaw.com [PDF]