Report Says Ebbers Knew of WorldCom Fraud

WorldCom's culture of fraud began with founder and former chief Bernie Ebbers, according to a long-awaited report.

The report, released Monday, offers extensive anecdotes indicating WorldCom was run at a breakneck pace to meet ever-escalating growth expectations. But investigators conclude that the "culture" that resulted in $11 billion in accounting misstatements stemmed from Ebbers.

"Ebbers created the pressure that led to the fraud," says the report, prepared by former U.S. Attorney General Richard Thornburgh. "He demanded the results he had promised, and he appeared to scorn the procedures (and people) that should have been a check on misreporting."

The findings come as federal prosecutors endure media scrutiny for their failure to bring charges against CEOS in certain high-profile corporate scandals -- including WorldCom, which was the nation's largest-ever bankruptcy case at the time of its implosion last June, and Enron. Ebbers has said he didn't know about the false accounting.

Thornburgh was appointed by a bankruptcy-court judge shortly after the company's Chapter 11 filing to examine WorldCom's financial controls and management.

Using evidence including voicemails left by former CFO Scott Sullivan, the report points to apparent acknowledgements of the company's thinly veiled accounting misdeeds.

In one voice mail Sullivan left for Ebbers, the then-CFO seems to caution that the company's books were far from in order.

"We are going to dig ourselves into a huge hole because year to date it's disguising what is going on on the recurring, uh, service side of the business," says the report's version of the message.

"There is clear evidence that Ebbers was aware of certain practices Sullivan and Myers used to inflate reported revenues," the report continues, referring to Sullivan and ex-controller David Myers. Sullivan has pleaded innocent to securities fraud and is expected to go to trial; Myers has pleaded guilty to conspiracy to commit fraud and securities fraud.

Three weeks later, the report says, Ebbers sent a memo to WorldCom's chief operating officer, Ron Beaumont, directing him to "see where we stand on those one time events that had to happen in order for us to have a chance to make our numbers."

Faulting the board for the lack of oversight, the report says the directors were largely in thrall with the forceful company founder.

"Ebbers was autocratic in his dealings with the Board, and the Board permitted it," according to the report. "With limited exceptions, the members of the Board were reluctant to challenge Ebbers even when they disagreed with him. They, like most observers, were impressed with the company's growth and Ebbers' reputation, although they were in some cases mystified or perplexed by his style."

While the report takes a close look at the history of the WorldCom debacle, it appears to offer no incriminating evidence that would carry forward to the current management and business.

The report duly notes that Ebbers, who left WorldCom April 30, 2002, and the others who allegedly carried out the accounting fraud have since left the company. Operating under bankruptcy protection for the last year, WorldCom has changed its name to MCI, relocated its headquarters to Ashburn, Va., from Clinton, Miss., and named former Compaq executive Michael Capellas as its CEO. MCI is expected to emerge as a viable, slimmed-down telco this fall.

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