Feds: Ebbers Was Desperate

They say the ex-WorldCom chief was motivated by massive loans and a plunging stock.
By Scott Moritz ,

Prosecutors contended Tuesday that Bernie Ebbers' faltering personal finances led him to orchestrate the massive accounting fraud that laid low the telecom giant.

The former

WorldCom

chief took the stand in U.S. District Court in Lower Manhattan to defend a federal securities fraud case linked to WorldCom's June 2002 bankruptcy filing. Ebbers was cross-examined for a second day on Tuesday morning, a day after he wrapped up several hours' worth of

friendly questioning by his own attorney, Reid Weingarten.

The U.S. attorney leading the government case, David Anders, spent Tuesday morning making the case that the former executive wasn't as out of touch as he claimed in Monday's testimony. Ebbers on Monday essentially claimed to have been ignorant of the workings of the company's finances.

In the third quarter of 2000, according to prosecutors, former finance chief Scott Sullivan gave Ebbers monthly revenue reports indicating quite clearly that WorldCom was headed for a significant revenue shortfall. Sullivan's testimony showed that the revenue reports pointed to a year-over-year top-line gain of 6.27% -- less than half the 13.5%-15.5% growth WorldCom had earlier guided Wall Street toward. Sullivan is the prosecution's star witness. He pleaded guilty in the case and has agreed to testify in an effort to reduce his sentence.

Sullivan has testified that he told Ebbers WorldCom should warn. Under questioning by Anders Tuesday, Ebbers claimed he didn't recall that exchange. Later, Ebbers denied Sullivan's account, saying, "He did not tell me that."

Not content to point to the discrepancies in the exec's testimony, Anders insisted that the guidance itself was evidence of Ebbers' involvement in WorldCom's finances. Anders pointed out that the growth projections were carried out to the half percentage point.

But Ebbers said that regardless of the endpoints of the range, the bottom line is that WorldCom was telling investors to expect revenue growth within the boundaries of 2 percentage points -- hardly a sophisticated concept, he said.

The government may have made more headway in linking Ebbers' acute personal financial distress to that of his company.

The government notes that Ebbers' personal wealth was dependent almost entirely on the fortunes of WorldCom stock, which prosecutors say gave him a motive to boost the company's numbers in order to keep Wall Street in his back pocket. Ebbers sees it differently, arguing that his decision not to sell any WorldCom shares -- even though he used the stock as collateral for various ventures, including a British Columbia ranch -- shows his interests were aligned with shareholders.

On Tuesday, Anders described an episode in which Ebbers stormed out of a meeting with J.P. Morgan -- because the firm had offered to head up his personal bankruptcy case. According to prosecutors, Ebbers then told Sullivan that WorldCom had erred in closing a recent corporate bond offering through J.P. Morgan. Ebbers denied the account.

Anders also offered up a memo discussing WorldCom dealings with banks in the $4 million-$5 million range. At the bottom of the page, Ebbers handwrote "use B of A only if we have to," indicating his personal animus toward financial outfits that didn't help him out when his WorldCom stock tanked, Anders said.

WorldCom's June 2002 bankruptcy made the stock worthless, putting Ebbers in hock to various creditors for hundreds of millions of dollars.

MCI

(MCIP)

, the Ashburn, Va.-based successor company to WorldCom, was left holding the bag on most of those loans. MCI agreed last month to merge with

Verizon

(VZ) - Get Report

, though

Qwest

(Q)

has been making increasingly strident overtures.

The case could go to the jury as soon as Thursday, lawyers indicated. Ebbers could face up to 85 years in jail if found guilty.

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