Former WorldCom Chief Faces Federal Securities Fraud Charges
The indictment includes the fraud charges as well as conspiracy to commit securities fraud and filing false documents with the Securities and Exchange Commission.
Also Tuesday, former WorldCom chief financial officer Scott Sullivan pleaded guilty to the same charges and signed an agreement to cooperate with prosecutors.
Sullivan had faced 25 years in prison, but will likely get less under the deal. His sentencing is scheduled for June 2, according to the Associated Press.
Ebbers resigned from WorldCom in April 2002, well after its stock price had begun a steady decline and soon after questions about the company’s finances surfaced.
In June 2002, WorldCom announced that it overstated its earnings for over a year by $3.8 billion through improper accounting methods. The alleged fraud is now estimated to top $11 billion.
According to the indictment, when the company’s results fell beneath analysts’ expectations in September 2000, Sullivan told Ebbers that WorldCom should alert investors, but Ebbers refused, the AP reported.
The men instructed subordinates “to falsely and fraudulently book certain entries in WorldCom’s general ledger” that misclassified expenses to diminish their effect on current profits, in an attempt to satisfy analysts’ expectations, the indictment said.
Four other former company executives have pleaded guilty to criminal charges in the Justice Department’s investigation and are helping prosecutors.
Ebbers and Sullivan were among six former WorldCom employees who were charged with 15 violations of state securities laws in Oklahoma in an accounting fraud that prosecutors said cost the state pension funds $64 million.
Oklahoma’s attorney general dropped criminal charges against Ebbers in November to make it easier to prosecute Sullivan, whose trial begins later this year, but plans to refile charges after the Sullivan trial ends, according to CNN.
Ebbers had built up WorldCom from a little-known discount long distance company that he started in Mississippi in 1983. Capitalizing on the breakup of telephone giant AT&T, the company bought more than 40 companies in five years.
In 1997, Ebbers surprised the communications world when he launched a $30 billion bid to take over phone giant MCI — at the time, the largest merger in history.
Two years later, Ebbers announced a $129 billion merger with long distance carrier Sprint, but federal and European regulators blocked the deal on antitrust grounds.
WorldCom’s stock price steadily lost value and the company began cutting its workforce. The firm filed for bankruptcy in July 2002.
In an attempt to heal its reputation, WorldCom changed its name to MCI in April 2003 and moved its headquarters to Ashburn, Va.