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WorldCom Faces Criminal Charges

Bernard Ebbers and WORLDCOM
AP / CBS
The Oklahoma attorney general Wednesday filed the first criminal charges against former WorldCom Inc. chief Bernard Ebbers, part of a wider complaint that also named the telecommunications company now known as MCI and other one-time top executives.

The complaint accuses Ebbers, the executives and the company of violating state securities laws by giving false information to investors.

MCI filed the nation's largest bankruptcy in July 2002 amid an accounting scandal that has grown to $11 billion.

Although this marks the first criminal charges against the company and against Ebbers, other former WorldCom executives have been charged in federal court, including ex-chief financial officer Scott Sullivan, who was also named in the Oklahoma complaint.

Four other ex-executives, who have pleaded guilty to federal charges, were also charged in Oklahoma: David Myers, Buford Yates Jr., Betty Vinson and Troy Normand.

Oklahoma Attorney General Drew Edmondson said he charged the company and the employees because they all stood to profit from the scheme.

"It is rare that we name a company in a criminal complaint, but in this case it is justified," Edmondson said in a statement. "The decision to commit this fraud was a company decision. This is not some rogue employee trying to line his own pockets. This was a conscious decision made for the benefit of the company."

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.

The complaint alleges the defendants schemed to defraud investors in Oklahoma by understating company expenses and overstating income in 2000. False statements were entered in the company's annual report to the Securities and Exchange Commission filed March 30, 2001, the complaint stated.

The complaint said Sullivan instructed Myers to make journal entries crediting certain expense accounts. Yates, Vinson and Normand made the entries at Myers' direction, it said.

To make the entries balance on WorldCom's general ledger, the employees debited various reserve and capital accounts without having supporting documentation or "any proper business rationale for the entries," according to the complaint.

The charges come as MCI is trying to move on from the accounting scandal. A report Tuesday from court-appointed monitor Richard Breeden, a former SEC chairman, set down a new framework for MCI's future governance and said the company is expected to emerge from bankruptcy shortly.

"We're looking forward to working with the Oklahoma attorney general's office as we work to put the past behind us," MCI spokeswoman Claire Hassett said. "The fact the former WorldCom executives committed fraud is not new news. They've been out of the company for months."

Although MCI reached a $750 million settlement with the SEC, the company has been under investigation from several states. It also faces a federal criminal investigation and was recently barred from signing new contracts with the U.S. government.