A federal jury convicted former
chief Bernie Ebbers on nine counts of securities fraud and false filings.
Ebbers, who built WorldCom out of a tiny telecom startup in Jackson, Miss., and was forced out shortly before the company collapsed in a heap of accounting fraud in 2002, faces up to 85 years in jail. Sentencing was set for June 13. For now, Ebbers is free on bail.
A jury of seven women and five men deliberated for eight days in U.S. District Court in Lower Manhattan before voting Tuesday to convict on all nine counts.
Ebbers, 63, insisted throughout a two-month-long trial that he wasn't aware of the $11 billion accounting fraud that pushed WorldCom into bankruptcy three years ago. Prosecutors mocked his "aw shucks" defense, calling Ebbers a micromanager who counted coffee filters and cut off free phone privileges for WorldCom employees.
Ebbers was convicted on one count each of conspiracy to commit fraud and securities fraud, and seven counts of making false filings with the SEC. Prosecutors persuaded the jury that Ebbers led a book-cooking scheme aimed at concealing the company's weakening performance and propping up WorldCom's stock price, which was the basis of his personal fortune.
Federal prosecutors said Ebbers' losses on WorldCom stock made him obsessed with pleasing Wall Street -- and led the company into fraud.
"Money can corrupt, power can corrupt, and pressure can corrupt," U.S. attorney William Johnson told jurors in summarizing the feds' case March 2. "But all three at one time is a perfect storm."
The linchpin of the government's case was the testimony of Ebbers' former right-hand man, ex-financial chief Scott Sullivan. Sullivan testified that Ebbers repeatedly admonished him and other financial execs to make sure WorldCom made the quarterly numbers it offered to Wall Street as guidance. Sullivan indicated that Ebbers continued to hammer home that theme even as the company's operating weakness became apparent.
The government's case drew an explicit connection between Ebbers' personal financial crisis and the need to keep news about WorldCom's faltering business hidden from Wall Street.
The smoking gun for the prosecution seemed to be the massive round-number adjustments made to line costs, the fees paid to other telcos that carried WorldCom calling traffic. By shifting the line costs to capital expenditures, Ebbers and his minions were able to keep a total of $3.8 billion in expenses from punishing profits.
Weingarten had portrayed his client as an unsophisticated college dropout who excelled at accumulating motels and later phone companies -- but didn't know a lick about accounting.
Prosecutors rejected that notion -- and repeatedly brought the case back to Ebbers' flagging personal finances. Ebbers owned 20 million shares of WorldCom, much of that purchased on credit from banks. As the stock price fell, the banks asked Ebbers to sell his stock, which was the collateral on the loans. These so-called margin calls escalated and WorldCom eventually had to step in and lend Ebbers $408 million to pay off the banks.
By 2002, the telecom industry had all but collapsed. And despite Ebbers'
assurances that WorldCom was in shipshape, the stock was plunging.
On April 29, 2002, Ebbers was forced out as CEO. In June, internal audits revealed about $4 billion in accounting errors. WorldCom then filed for Chapter 11 protection.
WorldCom emerged from bankruptcy as
in April last year and is currently at the center of competing merger offers from
The defense said Sullivan and other defense witnesses such as former controller David Myers lied to the jury in an effort to reduce their own sentences. Both testified for the government after pleading guilty in the massive accounting fraud.
On Tuesday, Ebbers lawyer Reid Weingarten indicated he would appeal, focusing on three witnesses who would have testified on Ebbers' behalf had they been granted immunity. Weingarten also said he believes the venue for the trial should have been changed to Mississippi, where WorldCom operated, from Manhattan.
"We know our client ... there's not one chance in the world ... that he would cook the books," Weingarten said. "Mr. Ebbers will be vindicated."