Advertisement

Archive for Thursday, August 28, 2003

WorldCom faces criminal charges

Oklahoma accuses company, former executives of falsifying books

August 28, 2003

Advertisement

— Oklahoma prosecutors filed the first criminal charges Wednesday against WorldCom and former CEO Bernard Ebbers in the $11 billion accounting scandal that plunged the long-distance giant into bankruptcy.

The company, Ebbers and five other former executives were accused of falsifying the books in violation of Oklahoma securities law.

Each executive faces 15 charges; each count carries up to 10 years in prison and a $10,000 fine. The former executives have one week to appear in court in Oklahoma City. WorldCom, which now calls itself MCI, could face millions in fines and restitution.

"By falsifying information, the company looked stronger on paper than it really was," Oklahoma Atty. Gen. Drew Edmondson said. "Investors counted on this information when buying WorldCom securities. The company lied. These employees lied. The law was broken. It's just that simple."

WorldCom collapsed last year in the biggest bankruptcy in U.S. history -- part of a wave of scandals to rock corporate America in the last two years. It was the biggest accounting scandal in U.S. history.

The plunge in WorldCom stock cost investors tens of billions of dollars, and Edmondson said the Oklahoma state pension fund took a $64 million hit.

Ebbers' attorney, Reid Weingarten, said he expected the former chief executive to be exonerated.

"The entire WorldCom matter has been investigated exhaustively for over a year by the FBI and the U.S. Department of Justice and no charges have been brought against Bernard Ebbers," Weingarten said. "This is not because of any lack of prosecutorial zeal; rather, it is because of a total lack of any evidence that Mr. Ebbers committed crimes."

Although this marks the first criminal charges against Ebbers and the company itself, other former WorldCom executives have been charged in federal court, including ex-chief financial officer Scott Sullivan, who also was charged in Oklahoma.

Four other former executives who have pleaded guilty to federal charges and are helping prosecutors were charged in Oklahoma as well: David Myers, Buford Yates Jr., Betty Vinson and Troy Normand.

The charges come as MCI tries under new management to emerge from bankruptcy and the scandal, which has already led to a $750 million settlement with the Securities and Exchange Commission.

"Today's action against the company would only punish our 20 million customers and 55,000 employees -- 2,000 of which work in Oklahoma," Kelly MCI general counsel Stasia Kelly said in a statement. "MCI has made tremendous progress over the past year and we are working hard to put our house in order."

Prosecutors said the executives schemed to defraud investors by understating expenses and overstating income in an annual report filed with the SEC in 2001.

"The decision to commit this fraud was a company decision," Edmondson said. "This is not some rogue employee trying to line his own pockets. This was a conscious decision made for the benefit of the company."

Edmondson said that immediately after the scandal broke, he asked his staff to see if any state laws had been broken. He said that there is nothing unusual about Oklahoma securities laws and that he would be surprised if other states did not take similar action.

"It is rare that we name a company in a criminal complaint, but in this case it is justified," Edmondson said.

The company has been under investigation by several other states and federal authorities, and recently was barred from signing new contracts with the U.S. government.

Ebbers was one of the hardest-charging figures in the 1990s telecommunications boom, turning WorldCom into one of the biggest companies in the world with a series of acquisitions, including MCI in 1997.

But reports commissioned by courts and the company after Ebbers resigned in April 2002 said he made several questionable moves with little oversight from a rubber-stamp board. Ebbers got $400 million in personal loans from the company, pledging his own stock as collateral.

Since resigning, Ebbers has largely stayed out of sight. When called before Congress last year during hearings over the business scandals, Ebbers invoked his Fifth Amendment rights and refused to testify.

Still, he said at the time: "I do not believe I have anything to hide."

"I believe that no one will conclude that I engaged in any criminal or fraudulent conduct," he said.

Commenting has been disabled for this item.