Bernie Ebbers was found guilty March 15 on all counts for his role in the $11-billion accounting fraud that brought down telecommunications giant WorldCom. On June 13, the former CEO will learn if he will spend the rest of his life in prison.
“It’s a sad day for Bernie, and a sad day for Mississippi,” said Paul Breazeale, CPA, of Jackson-based Breazeale Saunders & O’Neil Ltd. “He was the great hope for a lot of Mississippi investors, and they entrusted him with their money and expected him to be a good steward and have integrity. Obviously, that didn’t turn out to be the case.”
A federal jury debated Ebbers’ fate before returning with a verdict of guilty on the eighth day of deliberations.
The jurors, seven women and five men representing bank employees, teachers, transit workers and others from Manhattan, the Bronx and the northern suburbs of New York City, determined that Ebbers knew about the accounting fraud that wiped out savings and retirement plans for hundreds of Mississippians and thousands of stockholders worldwide who held onto WorldCom stock until the shares were virtually worthless.
Ebbers was found guilty on all charges-securities fraud, seven counts of filing false documents with the Securities and Exchange Commission, and conspiring with his apprentices to hike the telecommunication giant’s reported earnings from 2000 to 2002. He faces up to 85 years in prison.
“I think Bernie got a fair trial, and it was probably the only verdict the jury could’ve reached,” said Breazeale.
Despite the jury’s decision, speculation among the Mississippi business community remains high about whether Ebbers indeed knew about the fraud that catapulted the global telecom giant into bankruptcy in July 2002.
A former WorldCom accountant, who admitted vacillating on whether he believed Ebbers knew about the fraudulent accounting practices under Sullivan’s regime, said “if you told Bernie you were making an aggressive entry, he would take it at face value. Did Scott tell him it was illegal? I don’t know. I could imagine that he wouldn’t understand it was fraudulent.”
The spotlight will now shift to former WorldCom CFO Scott Sullivan, the government’s star witness who made the undisclosed changes to revenue accounting. Sullivan pleaded guilty to fraud and faces up to 25 years in prison.
“It came down to Bernie’s word against Scott’s, and the jury believed Scott, which really surprised me in a way, because he was the only one who could implicate Bernie, and it seemed apparent to me that his testimony was somewhat questionable because he was trying to save his own skin,” said Stacey Wall, CEO of Ridgeland-based Pinnacle Trust. “I think Bernie was guilty of not being on top of the company as he should have, which was his responsibility.”
With U.S. District Judge Barbara Jones presiding, the trial began January 26, with the prosecution trotting out 14 witnesses over 16 days, including Sullivan, the number two accounting person David Myers, former WorldCom accounting director Buddy Yates and former WorldCom accountants Betty Vinson and Troy Normand, all of whom pleaded guilty to charges of conspiracy and securities fraud.
Delving into the details
The defense team, led by Reid Weingarten, brought to the stand former WorldCom internal auditor Cynthia Cooper, who uncovered the massive accounting fraud, and former WorldCom chairman Bert Roberts.
Ebbers took the stand in his own defense and testified that Sullivan had not told him anything about the line-cost fraud. In Ebbers’ favor: the acquisition in 2002 of additional shares of WorldCom stock worth $5.3 million after he was ousted in April but before the fraud was discovered in June.
“If you’re sitting on the jury, it’s pretty compelling that two months before this all breaks loose, Bernie buys $5 million in stock when he didn’t have a whole lot of money sitting around,” said a former high-ranking WorldCom executive, who requested anonymity. “It was probably as much as he could afford to buy. He probably thought it was a bargain price. Was he so calculating that he thought it would help his defense when the world as he knew it coming to an end? It’s conceivable.”
Some legal analysts believed the prosecutor’s overwhelming task of explaining accounting terms and technical minutia might alienate the jury. The nifty David Letterman-style top 10 list of reasons to convict Ebbers, presented in the prosecutor’s closing arguments, might have simplified the matter for the jury.
From a $180-billion peak…
In Ebbers’ hometown of Brookhaven, where he lives on a ranch, attends church regularly, and is a frequent but low-key visitor to local stores, the mood has been mixed.
“The camps are so divided, I just hope this verdict puts speculation to rest,” said a Brookhaven businessman, who briefly worked with Ebbers.
The late John Sidgmore took the helm of WorldCom after Ebbers resigned, and held the post when the accounting fraud was made public and the company filed for bankruptcy. When Michael Capellas took over, he immediately moved the company headquarters from Clinton to Ashburn, Va., and renamed it MCI. During Ebbers’ trial, Verizon Communications announced plans to buy the company, which re-emerged from bankruptcy, for $6.7 billion in cash and stock. At its peak, WorldCom stock was valued at nearly $180 billion.
Contact MBJ contributing writer Lynne W. Jeter at email@example.com.