Former WorldCom Chief Indicted

Former WorldCom chief executive Bernie Ebbers is shown in this Oklahoma County Sheriff's Dept. booking photo. Ebbers surrendered to authorities Wednesday, Sept. 3, 2003, in Oklahoma City, where he is accused of violating Oklahoma securities laws.
AP
Former WorldCom CEO Bernard Ebbers was indicted on federal charges in the multibillion-dollar accounting scandal at the telecommunications giant, and his top financial officer pleaded guilty Tuesday and agreed to testify against him.

Former chief financial officer Scott Sullivan entered his plea in federal court. Earlier Tuesday, prosecutors announced charges against Ebbers for his alleged role in the nation's largest accounting scandal.

In the indictment filed Tuesday in U.S. District Court in Manhattan, Ebbers was charged with conspiracy to commit securities fraud, securities fraud and falsely filing with the Securities and Exchange Commission.


CBSNews.com will Webcast the attorney general's press conference, expected around 1 p.m. ET Tuesday.

Sullivan, who was arrested in August 2002, said in court that he had signed a deal with prosecutors agreeing to cooperate, with the possibility that substantial cooperation could decrease any potential sentence.

Attorney General John Ashcroft planned to announced the Ebbers indictment at a news conference in New York Tuesday afternoon.

Ebbers' attorney, Brian Heberling, declined to comment.

Ebbers resigned from WorldCom in April 2002, well after its stock price had begun a steady decline and soon after questions arose about the company's finances. Two months later, WorldCom announced it had uncovered nearly $4 billion in hidden expenses — the beginning of a spiral that would become the largest corporate scandal in U.S. history. The alleged fraud now is estimated at $11 billion.

WorldCom filed for bankruptcy July 21, 2002. In a bid to mend its reputation, WorldCom changed its name to MCI last April and moved its headquarters to Virginia.

Four former company executives, including controller David Myers, have pleaded guilty to criminal charges in the Justice Department's fraud investigation and are helping federal prosecutors.

Ebbers and Sullivan were also charged with 15 violations of state securities laws in Oklahoma. They are among six ex-WorldCom employees charged there in an accounting fraud that prosecutors say cost state pension funds $64 million.

Oklahoma's attorney general dropped criminal charges against Ebbers in November but has said he plans to refile them this year.

Four former company executives have pleaded guilty to criminal charges in the Justice Department's fraud investigation and are helping federal prosecutors.

Last year a federal judge in New York approved a $750 million settlement between WorldCom and the Securities and Exchange Commission, designed to repay investors who lost money in the fraud.

WorldCom also has agreed to corporate reforms, including a court-appointed monitor and regular audits.

WorldCom merged with MCI in 1997 and planned to merge with Sprint in 1999 until the deal was called off. In a bid to heal its reputation, WorldCom changed its name to MCI and move its headquarters to Ashburn, Va.

In the 1990s, Ebbers was one of the hardest-charging figures in the telecommunications industry as he grew WorldCom with a series of acquisitions.

But investigative reports commissioned by courts and the company have said he steered WorldCom through several questionable moves with the help of a rubber-stamp board.

One report, produced by lawyer William McLucas at the request of the company's new board, faulted Ebbers for fostering a poisonous corporate culture and said he was "aware, at a minimum, that WorldCom was meeting revenue expectations through financial gimmickry."

The McLucas report offered searing accounts about how ex-chief financial officer Scott Sullivan and other key finance executives cooked WorldCom's books to hide that the real numbers were falling short of Wall Street's expectations.

A voicemail Sullivan left for Ebbers on June 19, 2001, more than a year before WorldCom acknowledged its accounting fraud, described monthly revenue reports as "getting worse and worse. ... copy that you and I have already has accounting fluff in it ... all one-time stuff or junk."

A second report, prepared by former Attorney General Richard Thornburgh for a bankruptcy judge in New York, describes a corporate culture dominated by Ebbers and Sullivan, "with virtually no checks or restraints placed on their actions by the board of directors or other management."

Thornburg said Ebbers and Sullivan were given discretion to rack up more than $30 billion in debt and make multibillion acquisitions with minimal input from the board.

Another report by a special committee appoint by the company's board described "a culture emanating from corporate headquarters that emphasized making the numbers above all else."

"This culture began at the top," the report read. "Ebbers created the pressure that led to the fraud. He demanded the results he had promised, and he appeared to scorn the procedures (and people) that should have been a check on misreporting."

The report found WorldCom had inflated profits by simply making up revenues that didn't exist, and depressing expenses by creating "accruals" to offset the cost of transmitting phone calls.