WorldCom executives charged with fraud

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Now Spitzer turns his guns on the rich but fallen idols of corporate America

Two former top executives of the bankrupt telecommunications colossus WorldCom were yesterday led handcuffed into court in New York and charged with fraud in connection with the biggest business collapse in US history.

Scott Sullivan, WorldCom's former chief financial officer, and David Myers, its former controller, had turned themselves in to the FBI at 7am from where they were taken to federal court.

The charges claim Mr Sullivan directed Mr Myers to hide about $3.8bn of expenses by scattering them through the company's accounts and describing them as capital expenditure,allowing WorldCom to inflate its earnings when it was actually losing money.

Conspicuous by his absence in court yesterday was Bernie Ebbers, the flamboyant founder of WorldCom, who quit the company two months before it disclosed the massive accounting irregularities on 25 June. It is widely believed that the authorities may offer Mr Sullivan and Mr Myers a plea bargain in return for their co-operation, which would presumably strengthen a subsequent case against Mr Ebbers.

The debacle at WorldCom, after a string of early accounting scandals culminating in the conviction of auditors Arthur Andersen for obstruction of justice in the Enron affair, was the event which finally forced Congress to pass last week its tough corporate reform and accounting oversight bill.

Under the new law, Mr Sullivan and Mr Myers could, if convicted, face prison terms of up to five years for conspiracy to commit fraud, and a maximum of 10 years, and a $1m fine, on the counts of actual fraud and the filing of false accounts.

Coming after the similar treatment handed out last week to John Rigas, founder of the failed Adelphia telecommunications group, and two of his sons, yesterday's arrests leave no doubt the authorities intend to make public examples of prominent disgraced chief executives, to discourage any future imitators.

The charges hold that the two men concealed information from Andersen, WorldCom's auditor, and from the Securities and Exchange Commission, which has filed its own civil fraud charges against WorldCom, alleging "accounting irregularities of unpreceden- ted magnitude".

After the initial announcement of the accounting problems, the second-largest US long-distance carrier crumbled under the weight of $40bn of debt, and on 21 July made the largest single bankruptcy filing, eclipsing that of Enron seven months earlier.

Bolstered by an emergency court-approved $2bn loan package, WorldCom's new chief executive, John Sidgmore, is trying to reach a long-term deal with banks and creditors to secure the company's survival.