Ebbers guilty of $11bn fraud at WorldCom

Former telecoms tycoon faces a maximum 85-year sentence after biggest bankruptcy in US history
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The Independent Online

Bernie Ebbers, the former head of WorldCom and a one-time business buccaneer widely admired for his style and integrity, was convicted yesterday of an $11bn (£5.8bn) fraud that resulted in the biggest bankruptcy in US history. The charges carry a maximum punishment of 85 years in prison, although he is likely to serve much less than that.

Bernie Ebbers, the former head of WorldCom and a one-time business buccaneer widely admired for his style and integrity, was convicted yesterday of an $11bn (£5.8bn) fraud that resulted in the biggest bankruptcy in US history. The charges carry a maximum punishment of 85 years in prison, although he is likely to serve much less than that.

A jury in New York deliberated for eight days before dismissing Ebbers' claims he knew nothing about accountancy and was unaware that a fraud was being perpetrated by his subordinates. In all, he was convicted of one count of securities fraud and seven of false regulatory filings. Sentencing has been fixed for June.

The conviction completes a staggering fall for Ebbers, 63, who took a small, long-distance phone company based in Clinton, Mississippi, and turned it into the second-biggest long-distance carrier in the US. At the height of his success he was lauded for his down-to-earth style as well as his willingness to give back to the community. When he bought MCI in 1997, he insisted that company cars were scrapped and that managers travelling out of town had to stay in cheap hotels and even share rooms.

But the fraud that led to the 2002 bankruptcy of WorldCom also cost 20,000 people their jobs and Ebbers was rapidly transformed from hero to hate figure. The fraud resulted in about $600m being lost from employee pensions.

During the six-week trial prosecutors portrayed Ebbers as a man obsessed with keeping WorldCom's stock price high. They relied largely on testimony from Scott Sullivan, the former chief financial officer at WorldCom, who claimed that Ebbers directed him to hide expenses and to overstate revenue to meet Wall Street's expectations. Sullivan - the only witness to implicate Ebbers directly in the fraud - pleaded guilty in exchange for a more lenient sentence.

Taking to the stand to defend himself, Ebbers claimed his knowledge of corporate finance was limited. "I don't know finance and accounting," he said.

The former high school basketball coach and one-time nightclub bouncer emerged as a force to be reckoned with after he moved to Mississippi in the early Eighties from his native Canada and bought a modest motel chain. One of the motels had the unlikely sideline of reselling surplus long-distance phone capacity.

The original plan of Ebbers and a small group of investors, which he famously scribbled out on the back of a napkin in a Mississippi diner, transformed the motel's sideline activities into a free-standing venture, reselling capacity at rock-bottom prices. The company was called Long Distance Discount Services (LDDS) but was soon renamed WorldCom. As his company grew, he chose to ignore the cautious, post-regulatory mindset of telecoms industry executives and seized the opportunity to put them out of business. In a string of rapid acquisitions he bought up more than 70 other telephone concerns. Each time he paid with shares rather than cash, and on every occasion his routine was the same: absorbing the new company's client bases and then ruthlessly cutting costs.

But Sullivan told the court that Ebbers had directed him to begin hiding costs and inflating revenue to camouflage WorldCom's slowing growth after a downturn in the telecoms market in 2000. Sullivan testified that he told Ebbers of phoney accounting entries made to enable WorldCom to meet revenue and profit targets. Sullivan said Ebbers ordered him to "hit the numbers", which he took as licence to conceal $3.8bn in fees paid to other telephone companies to use their lines. The company began restating earnings after Ebbers was forced to quit in April 2002. It filed for bankruptcy in July that year.

Analysts said yesterday that the decision may provide encouragement to Justice Department prosecutors as they prepare to try the former Enron chief executives Kenneth Lay and Jeffrey Skilling on securities fraud charges. The main witness in that case is Andrew Fastow, an ex-CFO who has pleaded guilty in exchange for leniency.

WorldCom's bankruptcy eclipsed Enron's as the largest ever in the US. The two companies became symbols of the US corporate corruption that led Congress to pass the Sarbanes-Oxley Act in 2002. .

When yesterday's verdict was read, Ebbers' face reddened while his wife Christie and other family members broke down in tears. Ebbers was released on bail and he and his wife left the courthouse without speaking to reporters. His lawyer, Reid Weingarten, said they were planning to appeal against the verdict. "We're all devastated. It's very sad it came out the way it did. We are obviously extremely disappointed with this verdict, but the fight will continue."

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