Former WorldCom chief Bernard Ebbers lost his in-court stare-down with a subordinate Tuesday when a federal jury in Manhattan convicted him of committing massive fraud and conspiracy leading to the fall of the company in 2002. Among other things, the long-anticipated verdict means that the jury believed Ebbers less than the prosecution's main witness against him, Scott Sullivan, the former chief financial officer of the company.
The complex corporate case had come down mainly to a battle over the credibility of the two men, a scenario that sometimes can be dangerous for prosecutors. Sullivan pleaded guilty last March and turned "state's evidence" against Ebbers, accusing his former boss of being the criminal mastermind in illegal schemes that ultimately resulted in the loss of $11 billion when WorldCom went south in 2002. "I told Bernie 'This isn't right,'" Sullivan told jurors when asked by prosecutors about the company's fake accounting figures. "We have to hit our numbers," Sullivan said Ebbers told him.
The feds hoped and expected that Sullivan's story would hold up on cross-examination and that they could cobble together enough corroborating evidence to push jurors toward believing that Ebbers engaged in titanic fraud. They hoped and expected that the enormity of the WorldCom problem — the sheer magnitude of the collapse — would also help doom Ebbers, the obvious and charismatic symbol of the company. And in the end they were right. Even though Sullivan was not a particularly good witness, and even though there wasn't much documentary evidence linking Ebbers to the charges, the jury convicted on all counts.
The prosecution's wing-and-a-prayer strategy succeeded spectacularly even though the defense took an extraordinary and rare gamble. Toward the end of the trial, Ebbers himself took the witness stand and testified, decently if not spectacularly, that he had not known of WorldCom's fraudulent schemes. Since Sullivan already had admitted to related crimes, Ebbers essentially pointed the finger at his former colleague and told jurors that of the two of them, he, Ebbers, was the one more likely to be telling the truth. "He has never told me he made an entry that wasn't right," Ebbers told jurors. "If he had, we wouldn't be here today."
Having a criminal defendant testify at trial is almost never a good idea. It means either that defense attorneys believe their case is so hopeless that the testimony couldn't hurt, that they want to soften up the jury in order to avoid a death penalty, or that the defendant's credibility and reputation are so impeccable that jurors actually might believe the inevitable denial of guilt from the stand. None of those scenarios applied to Ebbers and his defense case. Yet sensing a vulnerable prosecution case and a wobbly prime witness, Ebbers' attorneys put him on the stand. In a criminal case, when two opposing witness have equal credibility, or close to equal credibility, reasonable doubt can exist. It can but in this case, apparently, it didn't. No matter how long it took, this verdict tells me that Ebbers' story simply wasn't credible to jurors — it simply didn't make any sense to them — and that Sullivan's version was reasonable enough for them to hang their hats on.
Ebbers' devastating loss also is a lesson that "paper management" or, as a cynic might say, the art of not leaving a paper trail, isn't all that it is cracked up to be. Sullivan was able to close the deal for prosecutors even though there wasn't much other evidence, other proof that supported his version of events over Ebbers' contradictory version. There weren't a stack of e-mails to or from Ebbers authorizing or ordering illegal conduct. There weren't a bunch of memos or notes. Ebbers' management style, apparently, included lots of face-to-face contact but very little written record. This allowed his defense attorneys to portray him as a "hands-off" manager when it came to the sorts of complex financial transactions that were the core of the prosecution's case. And that cut into the prosecution's theory of him as a savvy corporate leader who knew precisely what his underlings were doing.
But in the end it didn't make enough of a dent to change the jury's conclusions. The "stupid CEO" defense rarely works. Usually, jurors have a hard time believing that anyone who can rise to the pinnacle of Corporate America can be so stupid or naïve as to not know what is happening with the company's books. Jurors also typically understand that many corporate executives, even bad ones that allow their companies to run into the ground, tend to insulate themselves from allegations of misconduct precisely by invoking a "see no evil, hear no evil, speak no evil" policy. And when you combine that with the legacy some of these corporate leaders leave — no example is more apt than the catastrophe at WorldCom — jurors generally vote for prosecutors, saying, in effect to corporate defendants: "It happened on your watch and we are going to hold you responsible, whether you were smart enough to see it and stop it or not."
That's the calculus that doomed Ebbers. WorldCom's "front man," the visionary, up-from-bootstraps marketing leader who focused upon cutting costs and motivating his employees, failed in the biggest and most important sales pitch of his life. And now he almost certainly will get to spend the rest of his life in prison wondering how it all went so wrong for so many, including himself and Sullivan.
By Andrew Cohen