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CORPORATISM -
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WorldCom's Ebbers Convicted

Posted in the database on Tuesday, March 15th, 2005 @ 23:38:28 MST (1661 views)
by Brooke A. Masters    Washington Post  

Untitled Document NEW YORK, March 15 -- Former WorldCom Inc. chief executive Bernard J. Ebbers was found guilty Tuesday on all counts against him of conspiracy, securities fraud and false regulatory filings for his role in a massive accounting fraud that led to the downfall of the nation's second-largest telecommunications firm and cost investors billions of dollars.

Ebbers sat impassively with his fingers laced as the jury forewoman delivered a guilty verdict on all nine counts. He stared intently at each juror as the judge polled them individually.

The jury of seven women and five men held Ebbers, 63, responsible for filings that boosted WorldCom's reported earnings and hid the fact that its business was deteriorating for nearly two years. WorldCom filed for bankruptcy protection in July 2002, later announcing it had uncovered $11 billion in fraudulent accounting entries.

The firm's collapse, combined with the implosion of Enron Corp., sounded the death knell for the 1990s stock market boom and prompted Congress to enact strict new laws holding corporate chieftains more accountable for their companies' financial reporting.

"It's a very sad day for Bernie Ebbers, but it's a very good day for Wall Street and investors," said St. John's University law professor Anthony M. Sabino. "If you're the chief executive, you're the captain of the ship. You can't get in front of a jury and say, 'I'm not responsible.' "

That could be a chilling thought for former chief executives whose trials are underway or pending, including HealthSouth Corp. founder Richard M. Scrushy and former Enron executives Kenneth L. Lay and Jeffrey K. Skilling, who are all using similar defenses.

Ebbers, a former milkman and high school coach who built WorldCom from a tiny Mississippi long-distance reseller into a national powerhouse, is the fifth and highest-ranking WorldCom executive to be convicted in the fraud. He faces a maximum of 85 years in prison and could spend much of the rest of his life behind bars. It was a remarkable comedown for a former billionaire once hailed as the "telecom cowboy" for helping lead the telecommunications revolution.

His wife, Kristie, cried quietly throughout the reading of the verdict, and, after it was finished, Ebbers walked over and put his arms around her and their daughter. Then he and his family left the Manhattan courthouse together, pushing through a scrum of reporters who peppered him with questions. Silent and still impassive, he and his family climbed into a taxi.

The conviction came after five weeks of testimony and more than 40 hours of deliberation over eight days. During that time the jury sent out more than two dozen notes and requested transcripts of the testimony of virtually every witness.

"We are all devastated. We profoundly believe in our client. We believe this case is riddled with reasonable doubt," said Reid H. Weingarten, Ebbers's lead attorney. Weingarten promised to appeal.

Prosecutors left the courtroom without commenting. Later, Attorney General Alberto R. Gonzales issued a statement saying, "Today's verdict is a triumph of our legal system and the application of our nation's laws against those who breach them. We are satisfied the jury saw what we did in this case: that fraud at WorldCom extended from the middle-management levels of this company, all the way to its top executive."

Juror Vincent Wright, 52, a Manhattan bus driver, said he personally concluded "three things" about Ebbers after hearing the case against him: "He was either incredibly stupid, incredibly naive or incredibly smart, and he's not stupid. Naive, maybe. The company was having problems, and he just didn't want to see it go down. It was his baby."

The government had contended that Ebbers orchestrated a scheme to boost WorldCom's share price because he was trying to protect his personal fortune -- once valued at $1 billion -- from banks that were calling in his loans as the company's stock fell. Assistant U.S. Attorney William F. Johnson referred to the fraud as a "perfect storm of corruption" combining money, power and personal pressure on Ebbers.

Ebbers's former lieutenant, Scott D. Sullivan, WorldCom's ousted finance chief, testified that he personally had informed Ebbers that he was taking improper "shortcuts to earnings" and making "adjustments that weren't right" to the way the company booked revenue and operating expenses known as line costs. In these private conversations, Sullivan said, Ebbers ordered him to commit the fraud by insisting that the company had to "hit the numbers" Wall Street was expecting for revenue and earnings.

Three lower-level WorldCom executives, who like Sullivan have pleaded guilty to fraud, explained how they had secretly reclassified more than $2 billion in line costs -- fees paid to other carriers for use of their networks -- as capital expenditures. A voice mail from Sullivan to Ebbers and a memo written by Ebbers both strongly suggested that he was aware the company was including "accounting fluff" and "one time events" in its revenue numbers. Other employees of WorldCom and its successor, MCI Inc. of Ashburn, testified that Ebbers had an eagle eye for cutting costs -- down to small items such as bottled water and the company's coffee service -- and closely studied WorldCom budget documents.

But Ebbers took the stand and denied that Sullivan had ever told him that anything illegal was going on. Weingarten, Ebbers's attorney, contended that Sullivan had masterminded the line cost scheme and was falsely accusing Ebbers to cut his own prison time. Prosecutors introduced no documents that directly linked Ebbers to the line cost fraud and only one conversation with anyone other than Sullivan. Ebbers also contended that he trusted Sullivan to make sure that the company reported its revenue and expense accounting properly.

"This man has committed no crimes," Weingarten argued to the jury.

Juror Wright said the panel agreed within the first few days that Ebbers had committed securities fraud, and he said it was "easy" to convict Ebbers of the seven false-filing charges. But the group split eight to four on the conspiracy charge, with Wright and three others arguing for acquittal.

The problem, Wright said, was that "most jurors did not believe Scott Sullivan" and without his testimony there was little direct evidence that Ebbers had conspired with other WorldCom officials to carry out the fraud. On Monday, the jurors constructed a timeline that ultimately convinced Wright and the other holdouts that Ebbers and the other WorldCom officials were working toward the same fraudulent goal, Wright said.

The other jurors sent word through U.S. District Judge Barbara S. Jones that they did not want to comment. The panel members came mostly from blue-collar walks of life in Manhattan, the Bronx and the northern suburbs of New York City, a long way from Edmonton, Canada, where Ebbers was born and attended high school, and Mississippi, where he built WorldCom into a force to be reckoned with.

Jones thanked the jurors and set sentencing for June 13.

How much time Ebbers may serve is somewhat unclear because the U.S. Supreme Court recently declared federal sentencing guidelines unconstitutional but said judges could use them as a guide. If the guidelines were in force, Ebbers would probably receive at least 25 years, with a possible increase if Jones decides he lied on the stand. But she could also give him reductions for his personal situation -- he has a heart condition and has made more than $100 million in charitable gifts -- or opt not to use the guidelines at all.

Staff writer Ben White and staff researcher Richard Drezen contributed to this report.

© 2005 The Washington Post Company



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