Bernard Ebbers Guilty of Conspiracy and Fraud

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• JEFFREY BROWN:

  In the end, it was a complete victory for the prosecution: Guilty on all counts. Bernard Ebbers' conviction comes two years after auditors first began investigating his company, the telecommunications giant WorldCom.

  Ken Belson covered the trial for the New York Times and was in the courtroom today. Also joining us is Jacob Frenkel, a former federal prosecutor and attorney with the Securities & Exchange Commission. He's now in private practice in Maryland. And welcome to both of you. Ken Belson, why don't you start by telling us what happened in the courtroom today when the verdict was read.

• KEN BELSON:

  Well, after eight days of very tedious waiting, it all happened very quickly. The court clerk banged the door three times, came in; the jury sat down and very quickly read through, in response to questions from the judge, their guilty verdicts on all nine counts.

  Mr. Ebbers sat very silently. His hands were clasped. He hardly showed any emotion on his face although the blood seemed to drain out of his face by the end of it and his wife, who was sitting one row behind him, started crying after the second verdict was read. They left very quickly afterwards, caught a cab almost within minutes of leaving the courthouse. There was a bit of pandemonium afterwards surrounding his lawyer, Mr. Weingarten, but that lasted mostly outside of the courthouse.

• JEFFREY BROWN:

  Ken, the jurors chose not to speak. They did, over these days of deliberation, send some notes to the judge. Were you able to gather any information or clues as to how they made their decision or why it took so long?

• KEN BELSON:

  It's hard to confirm because we don't have any of the jurors speaking. But it is sort of reassuring in the sense that they spent eight days asking for all sorts of information, everything from the original quarterly filings of the company all the way down to bits and pieces of testimony that they heard over the eight-week trial. And so I think they did a very thorough job of trying to get to the bottom of the case. Ultimately though, it came down to the testimony of the government's star witness, Scott Sullivan, who was the chief financial officer at WorldCom and the word of Bernie Ebbers, the CEO at the time. And Mr. Sullivan said Mr. Ebbers instructed him to carry out the fraud and Mr. Ebbers denied that he ever had those meetings. And ultimately the jury sided with Mr. Sullivan's side of the story.

• JEFFREY BROWN:

  Jacob Frenkel, start with your reaction to the verdict. Were you surprised in any way?

• JACOB FRENKEL:

  Actually, I was not. I mean, this verdict really was consistent with the evidence. And ultimately it turned on was the jury going to believe Bernie Ebbers which I think would have resulted in a fairly quick acquittal, or were they going to immediately accept what Scott Sullivan said, which also might have resulted in a quick verdict of guilty. But here, as Ken correctly stated, you had a jury that worked through the evidence very closely, never appeared to reach an impasse, were clearly moving forward throughout the time and I think that probably under the circumstances reached a correct but very difficult verdict.

• JEFFREY BROWN:

  Before we get to the Ebbers versus Sullivan, to go more into that, what did the prosecution have to prove to win its case?

• JACOB FRENKEL:

  Well, I think the biggest issue was to prove each element of the crime beyond a reasonable doubt. And I think that's critical to the Sullivan versus Ebbers issue because if they disbelieved Scott Sullivan, that would have been reasonable doubt and could have been the end of the case. And similarly having disbelieved Bernie Ebbers outright — that would on many levels been the converse. But in essence, they were establishing that there was a conspiracy; that Bernie Ebbers acted with others, principally Scott Sullivan but also others in the hierarchy of WorldCom, that he committed securities fraud both on the basis of making false statements and omitting to disclose material facts and signing findings with the SEC that simply were incorrect.

• JEFFREY BROWN:

  Scott Sullivan, the former finance chief was trying to make the point that Bernie Ebbers, I think he said it, trying to hit the numbers. What does that mean?

• JACOB FRENKEL:

  Well, hit the numbers was sort of the magic term of the '90s, which is meet Wall Street's expectations to the exclusion of all else. What matters most is how are we performing as a company because in the '90s, maybe in the early part of this decade, you had executive compensation that was often tied to performance, which in turn was connected to the expectations on Wall Street. So that's really what hit the numbers was. It really reflected what was wrong in corporate boardroom cultures — the idea that it wasn't the shareholder, it wasn't governance first. It was let's meet Wall Street expectations. That's why Bernie Ebbers and other CEO's are sitting in the hot seats as they are today.

• JEFFREY BROWN:

  Ken Belson, you were in the courtroom every day. How did this Ebbers versus Sullivan play out? Did both sides acknowledge that's what this was about?

• KEN BELSON:

  Oh, it was very clear from the outset that Mr. Sullivan would be the person really carrying the weight of the argument for the government in all the pretrial hearings and the indictment itself; it was very clear that Mr. Sullivan was the final link to Mr. Ebbers. There were four other WorldCom accounting executives who also pleaded guilty to fraud similar to Mr. Sullivan but none of them had direct contact with Mr. Ebbers over the years that the fraud was carried out. So it really did come down to Mr. Sullivan. And he spent seven days on the stand, much of it in direct questioning from the prosecutors but then also in cross-examination. And he was a very consistent witness. He admitted to his role in the fraud. He was very straightforward about how he lied to the board, how he lied to shareholders. And so I think the jurors, perhaps, saw that he was coming clean, as it were. Mr. Ebbers was obviously positioned against him in saying that he didn't have any of those meetings but under cross-examination from the prosecutors, his story started to waffle a little bit. Certain things he forgot, certain other things he denied, other things he refused to answer. And so I think it came down to reading the witness, the body language that Mr. Sullivan gave off in court and the body language that Mr. Ebbers had.

• JEFFREY BROWN:

  Ken, the decision to have Bernie Ebbers testify was obviously a key decision. Did the defense attorney today express any regret about that?

• KEN BELSON:

  No, I don't think so. Mr. Weingarten didn't say that at the time and he didn't say it today, either. In the case where so much of the accusation rested on Mr. Sullivan's uncorroborated statements, I think Mr. Weingarten felt he had no choice but to put Mr. Ebbers up there to deny it outright. And so I think he felt like that was worthwhile, because to not put him up would suggest that maybe he had something to hide. I know jurors are not supposed to penalize a defendant for not taking the stand in their own defense, but it must feed into the calculus when they're making their decisions. Also, Mr. Ebbers, you know, tried to humanize his own story through all the money that he said he gave away to charities, through his very humble upbringing, through his admission that he really didn't know much about technology or accounting. All of those things, I think, the defense wanted to get out and express to show that he wasn't as sophisticated as perhaps the prosecution was suggesting.

• JEFFREY BROWN:

  Ken, staying with you for a moment and staying with this personal story you just brought up, try to step back and put it in those personal terms. You referred to it in your story as a rags to riches to rags story. This is quite a personal saga, for Bernie Ebbers.

• KEN BELSON:

  Yeah, absolutely. He grew up in Canada. His family moved to California to New Mexico. He dropped out of one college. He ended up injuring himself. He was a basketball player. He ended up graduating as a physical education teacher and ended up buying into a string of motels which later he parlayed into his original investment in WorldCom's predecessors in early '80s. He knew nothing about telephone technology per se, but he had a certain business savvy and he was a very good salesman and he managed to acquire dozens and dozens of companies over a period of about 15 years. So he was a kind of a new breed, as one magazine put it, cowboy executive, cowboy CEO; in many senses, he built himself up from almost nothing. At one point he was worth more than a billion dollars. Now he owes hundreds of millions of dollars to other people. He is named in all sorts of civil suits, and of course he has been convicted here.

• JEFFREY BROWN:

  Mr. Frenkel, put his story in the larger context of this aftermath of the end of the bubble, the telecom bubble and the scandals we've had over a number of years. Where are we now?

• JACOB FRENKEL:

  Well, I think we've seen a lot of rags to riches stories which, where the companies have not followed good governance practices, where it really was "me management," not management for the shareholders. We are seeing those now return to rags as Ken characterized it. And I think… that's evident in the Scrushy (ph) case, which is HealthSouth, the trial that's ongoing right now in Birmingham; it's also true in Enron with the upcoming trial the first of next year of Jeff Skilling and Ken Lay. We've seen another case as well, with Adelphia, which is a different kind of corporate fraud case which I would put into more the looting category, whereas this is more earnings management, financial fraud. And you have that third class of cases which was, you know, the Martha Stewart, the Frank Quattrone, which was false statements, lying to the government and obstruction of justice in which you can also include Arthur Anderson in that. But I think all these cases somehow reflect what was wrong with the corporate culture of the '90s.

• JEFFREY BROWN:

  And briefly because Enron is the one coming next, is it possible to see implications in this verdict for the Enron trial?

• JACOB FRENKEL:

  I think it's possible in terms of the defense strategy to the extent that Jeff Skilling would like to adopt a similar defense to the one that Bernie Ebbers used and similarly we know that Ken Lay is going to use this defense saying I'm one more step removed because I was chairman of the board. I think what it does is it gives the government confidence that it can overcome this defense in knowing that it's coming. But also we have to remember in my view the Ebbers case was probably the most difficult case for the government because there was one witness, Scott Sullivan. The others are different.

• JEFFREY BROWN:

  Okay. Jacob Frenkel and Ken Belson, thank you both very much.