Ebbers found guilty of WorldCom fraud

Ebbers found guilty of WorldCom fraud

Former WorldCom Chief Executive Officer Bernard Ebbers Tuesday was found guilty on all charges of conspiracy and fraud levelled against him in connection with US$11 billion of accounting misstatements that led to the telecommunications giant's bankruptcy, according to the United States Attorney's Office for the Southern District of New York.

The indictment against Ebbers charged that in 2000 he took part in a scheme to falsely inflate revenue and the price of WorldCom's stock. If sentenced sequentially, and to the maximum time, on all charges, Ebbers could receive 85 years in jail, according to the U.S. Attorney's office. The sentencing date is set for June 13, and until then Ebbers remains free, according to the U.S. Attorney's Office.

Ebbers took the stand to say that he left accounting to subordinates and had no knowledge of financial irregularities at WorldCom while he was chief executive officer (CEO). However, the jury apparently gave credence to the testimony of former WorldCom chief financial officer, Scott Sullivan, who pleaded guilty in the case and was the key witness against Ebbers.

Sullivan stands to receive a more lenient sentence for aiding federal authorities in the case. He was the only witness in the six-week trial who said he had spoken to Ebbers directly about the fraud.

In his testimony, Ebbers said that after he resigned as CEO in 2002, he was "shocked" to have learned that Sullivan was involved in financial irregularities.

The prosecution, however, produced e-mail that showed Ebbers grilled his subordinates about financial presentations, and questioned him about WorldCom decision-making to show that he was a hands-on manager who would have know about accounting issues.

"I'm not surprised, I would have been surprised if it had gone the other way," said Ernest Buehler, a former accountant for the City of New York, who attended part of the trial. "The idea that he didn't know anything about the financial shenanigans that were going on just doesn't go over. Surely he had to investigate the profit and loss figures of the companies that WorldCom acquired. WorldCom grew by acquiring dozens of companies. It doesn't make sense that when it came to running his own house, he wouldn't have known what was going on."

WorldCom now operates under the name MCI. It filed for bankruptcy in July 2002 after disclosing that employees falsified records to inflate revenue. MCI agreed to a US$750 million settlement for accounting irregularities with the U.S. Securities and Exchange Commission (SEC) and came out of bankruptcy last April.

MCI announced a US$6.7 billion merger deal with Verizon Communications Inc. last month, and is now considering a counterbid by Qwest Communications International Inc.

Ebbers faced, and was found guilty of, one count of conspiracy to commit securities fraud, one count of securities fraud and seven counts of false filing with the SEC. The conspiracy charge carries a maximum prison sentence of five years and a fine of either US$250,000 or twice the gross gain or loss resulting from the offense, whichever amount is larger. The fraud count carries a maximum of 10 years in prison and a fine of US$1 million or twice the gross gain or loss, whichever is bigger. The other counts have a maximum prison sentence of 10 years.

The decision to let Ebbers take the stand to offer his own story was controversial since, legal observers say, business executives often display prickly personalities and can become evasive under the stress of cross-examination.

In an attempt to humanize the former telecom chief, who once commanded a company with 90,000 employees, Ebber's lawyer, Reid Weingarten asked him about his modest beginnings as a basketball coach and owner of a small motel. He had Ebbers talk about his education -- how he dropped out of several colleges due to poor marks, and finally graduated with a degree in physical education.

Ebbers explained that he entered the telecom business as a way generate to capital for several motels. Weingarten asked Ebbers several times whether he had expertise in finance or accounting.

"I know what I don't know, and to this day I don't know technology and I don't know accounting and finance," Ebbers said. "I always thought that I was a pretty good coach and supervising sales and marketing people is kind of like coaching..... I focused my attention on sales and marketing."

However, the lead trial lawyer for the prosecution, David Anders, drilled Ebbers on his acquisition strategy to show that he understood financial issues, that he was a strong corporate leader who demanded detailed data from managers and that he exercised authority in business matters.

Buehler, the former City of New York accountant, and other observers said that while Ebbers appeared pleasant and avuncular on the stand while being questioned by Weingarten, he was evasive and aggressive under cross-examination.

"My experience with white collar criminals is that their intelligence, their shrewdness and arrogance -- those qualities that can help them get to where they are in the business world -- work against them and become their Achilles heel under cross-examination," said Norman Berle, a criminal lawyer who teaches business and ethics at the Fordham University Graduate School of Business in New York.

"One of the biggest points in the defense was that Ebbers continued to buy stock after he resigned but before the scandal became public, " Berle said. "The defense wanted the jury to ask why he would have done that if he had known it was a house of cards about to collapse. But again, the shrewdness of executives like Ebbers can work against them; they simply believe they won't get caught."

The fact that Ebbers denied any wrongdoing now will likely work against him, since judges often take into account acceptance of culpability when deciding whether or not to be lenient, Berle said.

In comments to media and broadcast by CBS Radio after the verdict, Weingarten indicated that he would file an appeal. "I don't think Mr. Ebbers ever acted with criminal intent ... the fight will continue."

However the trial judge, U.S. District Judge Barbara Jones, does not have a reputation for leaving trial records that allow for verdicts being overturned on appeal, according to Berle. "Ebbers will most likely get jail time," he said.

The U.S. Department of Justice was triumphant. "We are satisfied the jury saw what we did in this case: that fraud at WorldCom extended from the middle-management levels of this company, all the way to its top executive," said U.S. Attorney General Alberto Gonzales, in a statement Tuesday.

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