The securities fraud and conspiracy trial of former WorldCom CEO Bernard Ebbers, which starts Wednesday in federal court in New York City, is an order of magnitude bigger and more important than the concurrent retrial of former Dennis Kozlowski and Mark Swartz. It is not even in the same universe as the paltry obstruction case that brought down Martha Stewart. It is bigger than Enron. It is bigger than the HealthSouth case now underway against the company's founder, Richard Scrushy. It is, by some accounts, the biggest fraud case in history; a case involving allegations of an $11 billion scam that could land Ebbers in prison for the rest of his life.
United States v. Ebbers represents the sum of all of those other recent cases of corporate greed and excess; a confluence of questionable accounting, Wall Street pressure, poor governmental regulation, snake-oil industries, enormous egos and salaries and suspicious motives. If you wanted to watch a personal drama, the fall of the high and mighty, you would have wanted to watch the Stewart trial or the Frank Quattrone obstruction-of-justice trial and you might want to check out the upcoming trial of Kenneth Lay and Jeffrey Skilling. But if you want to see how a huge company could go so wrong, if you want to understand how WorldCom and Enron and Arthur Andersen and other giants could self-destruct so completely, if you want to absorb the latest wave of white-collar shenanigans, you'll want to check out the Ebbers case.
Caught between last year's wave of corporate cases and the looming Enron cases, it's unclear whether the Ebbers' saga will capture the interest of the media or the attention of regular news consumers. Ebbers made a fortune running WorldCom but he apparently didn't spend $15,000 on an umbrella stand like Tyco's Kozlowski did. Nor was he buddies with the president like Lay was. Nor was he as glitzy as Quattrone. Presumably, Ebbers' personal assistant and best friend won't testify against him, like Stewart's confidantes did to her demise. Moreover, the guy was born in Canada, a fact that almost always dooms someone to relative obscurity. So the Ebbers trial thus will be a slog through securities law; a complex, meandering, sophisticated case about the chasm between corporate regulation and responsibilities.
Prosecutors contend that the former CEO ordered the books cooked, Enron-like, to hide the company's corporate health when things got tough in the telecommunications business. And they've undertaken an investigation that resembles the Enron investigation for its from-the-ground-up approach. Several former WorldCom executives have taken plea deals for the government and will testify against Ebbers, much like several of Lay's former subordinates have turned state's evidence against him. These witnesses almost certainly will contend that Ebbers was in the loop, that even if he didn't actually do the work of illegal deception he was aware of it and authorized it until the company went into bankruptcy – the largest bankruptcy filing, incidentally, in American history.
This Ebbers-in-control view, not incidentally, is mostly shared by a bankruptcy court report on WorldCom that was completed last year; a report coordinated by former U.S. Attorney General Richard E. Thornburgh. As the New York Times reported Sunday, this report indicated that Ebbers was involved in the financial reporting process of WorldCom, a conclusion that is likely to have great weight with jurors if it makes it into the trial. In fact, the bankruptcy proceeding is like a stalking horse to this criminal trial, another avenue of peril for Ebbers and opportunity for the government.
But the case will come down to inside baseball at WorldCom before its fall. So the most important witness against Ebbers likely will be Scott D. Sullivan, WorldCom's former chief financial officer, who cut a deal with prosecutors last March. Sullivan was thisclose to Ebbers and presumably will try to link his former boss to knowledge of the conduct that prosecutors say amounted to fraud. The success of Sullivan and the other WorldCom stoolies will determine what happens to Ebbers. If jurors believe that Ebbers knew what was going on, he'll very likely be convicted of something, even if there is no great proof that he was a mastermind over what happened. But if jurors believe that the WorldCom witnesses are merely testifying to what prosecutors want them to say about Ebbers, the defense has a chance.
Ebbers also has a chance because he did some things – and didn't do some things – that place him in a different category than the Marthas and Kenny Boys of the world. First, no one seems to think that Ebbers was intellectually capable of coming up with the schemes that hid WorldCom's perilous financial status. In other words, no one seems to think that Ebbers was on a par with Andrew Fastow or Jeffrey Skilling, the fellows prosecutors say conceived and directed Enron's three-card monte scheme.
This ought to help Ebbers in two ways. It will help "humanize" him for jurors, who probably will share his inability to comprehend complex financial transactions. Second, and probably more importantly, it will allow the defense to credibly blame WorldCom's accountants (and Sullivan and others) for the allegedly shady reporting of the company's finances. Even if Ebbers was a hands-on executive, which seems to be the consensus, there are hands-on executives who worry about long-range things and there are those who do not. If Ebbers can convince jurors that he left the details to others, he has a chance for an acquittal.
The other thing Ebbers has going for him is that he did not, apparently, sell his stock in WorldCom before it fell, a la Martha. In fact, the defense is expected to tell jurors that if Ebbers had faults in his corporate governance it was in being blindly loyal to WorldCom; that he stubbornly tried to right the ship even after he should have known it was sinking. That defense only will work if jurors like Ebbers personally, and that may only occur if Ebbers himself takes the witness stand in his own defense – an uncommon occurrence in any criminal case where the defendant's liberty (or fortune) is on the line.
People remember the Stewart trial because everyone knows Martha and everyone could understand what she did wrong. They remember the Tyco trial because Kozlowski's extravagance was beyond the pale. They remember the Enron cases because of how far the company fell and how swashbuckling its leaders were. What will people remember about the Ebbers case? I don't know. I just hope people remember it, regardless of how it turns out. Because when it comes to defining the corporate era of big bubbles and big busts, of unrealistic expectations and unsound promises, the rise and fall of WorldCom could provide the most comprehensive lessons of all.