Ebbers Found Guilty

UPDATED: Bernard Ebbers, former WorldCom CEO, is found guilty on fraud charges in connection with accounting scandal behind the collapse of Worldcom.
Posted March 15, 2005

Tim Gray

UPDATED: NEW YORK -- Former WorldCom CEO Bernard Ebbers was found guilty today on charges he ordered the telecom's finances inflated to cover massive losses.

Ebbers, 63, was accused of orchestrating an $11 billion fraud that led to WorldCom's collapse and the largest bankruptcy in U.S. history. He was charged with conspiracy, securities fraud and seven counts of lying to the Securities and Exchange Commission. He faces 85 years in prison.

"Today's verdict is a triumph of our legal system and the application of our nation's laws against those who breach them," said Attorney General Alberto Gonzales. "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.

Ebbers is expected to appeal. "The fight will continue," Reid Weingarten, Ebbers' attorney, told reporters this afternoon. "We profoundly disagree with the verdict. We will continue to believe there isn't a chance he participated in efforts to cook books at WorldCom."

During the five-week trial, Ebbers and his former CFO, Scott Sullivan, took the stand as key witnesses offering quite contrary testimony of the scandal. While on the stand last week, Ebbers maintained he was not aware that Sullivan and WorldCom accountants had falsifying financial statements until the company's collapse.

In fact, during opening arguments on Jan. 26 in U.S. District Court, Weingarten sought to paint Ebbers as an almost tragic figure who was misled by slippery accounting deeds by Sullivan.

In turn, Sullivan, the government's key witness, admitted to the jury that he cooked company books in order to inflate earnings and make the telecom appear profitable, but did so only under constant pressure from Ebbers.

"I falsified financial statements of the company; made adjustments to revenue for the purpose of meeting analyst expectations," Sullivan said on the stand.

He repeatedly said Ebbers constantly pressured him to "hit our numbers" when the telecom giant was struggling to generate revenues.

Sullivan, who is facing 25 years on similar charges, was on the stand for five days detailing, often in painstaking minutia, how the books were altered and that the orders had come from Ebbers.

The government claimed Ebbers instructed Sullivan to adjust the Mississippi-based company's accounting numbers every quarter from 2000 to 2002 to hit the marks set by Wall Street analysts -- regardless of the company's performance. He also testified that he helped create two sets of accounting books as part of his plans to inflate revenues.

The telecom's massive collapse and loss of $11 billion would ultimately become an emblem for the excesses during the dot-com bubble.

Sullivan testified during the trial that the drop in WorldCom's fortunes was caused by several factors, most notably the burst of the dot-com bubble and subsequently the burst of the telecom bubble in late 1999 and 2000.

"It was abruptly changing and we didn't expect either," he told the jury. "We expected the Internet to continue to provide growth."

He later admitted company executives had "taken their eye off the ball" when they became preoccupied with the failed acquisition of Sprint .

Scott H. Kessler, director of Information Technology Equity Research at Standard & Poors, said certain companies were better prepared than others to deal with the sudden loss of capital during the dot-com bust, and it had a particularly sharp impact on the telecom business.

"A lot of capital was pouring into different areas of technology, as well as ancillary areas, including telecom equipment and hardware," he said. "Once the Internet stocks peaked and then started heading down, it was like a spigot being turned off. Without capital, a lot of these companies were not able to keep afloat."

During the trial, the prosecution attempted to paint that precise picture of a struggling company unable and unprepared to handle fluctuating market conditions. But instead of riding the wave of a changing market, the prosecution said, Ebbers decided to orchestrate a massive fraud.

Sullivan backed up the government's position, claiming he had discussions with Ebbers each time analysts adjusted their consensus ratings concerning WorldCom's earnings and revenue estimates, often driving stock prices down.

"Most of the adjustments made were to get higher numbers and a higher growth rate," Sullivan told the jury. "We were trying to meet the expectations of the security analysts."

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