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Former WorldCom Executives Arrested

BY Admin  August 1, 2002 at 12:27 PM EDT

Former chief financial officer Scott Sullivan and former controller David Myers surrendered to the FBI in Manhattan Thursday morning. As they were led out of New York’s FBI headquarters in handcuffs, bystanders began to clap.

The move comes a week after the arrest of five executives at Adelphia Communications and two days after President Bush signed a bill outlining stiffer penalties for white-collar criminals.

A seven-count indictment, unsealed in federal court Thursday, alleges that Sullivan directed Myers to conceal more than $3 billion in expenses within the company’s capital expense accounts. Their actions enabled WorldCom to post a profit for 2001 and the first quarter of this year, according to a civil fraud complaint filed by the Securities and Exchange Commission.

Sullivan was fired and Myers resigned in June after the company disclosed it falsely accounted for $3.8 billion in expenses. On July 21, WorldCom, the parent company of MCI, filed the largest bankruptcy claim in U.S. history — twice the size of last year’s Enron case.

Prosecutors hope the charges will pressure Sullivan and Myers to disclose information about their boss at the time, former chief executive Bernard Ebbers, who is also under investigation. Ebbers resigned two months before the company admitted to the accounting problems.

As the SEC pursues civil fraud charges against WorldCom as a corporation, the Justice Department is reportedly considering criminal charges. The company itself has engaged a prominent securities lawyer to lead an internal investigation.

The company is also suing Sullivan and Myers to recover cash bonuses worth $10.8 million. According to “The Washington Post,” Sullivan sold WorldCom stock worth $34.6 million between 1999 and 2000.

WorldCom is currently operating under bankruptcy protection and $2 billion in emergency financing.