Two former WorldCom executives charged with hiding money, lying to investors
NEW YORK (AP) – Two former WorldCom executives were charged Thursday with hiding billions in expenses and lying to investors and regulators in a desperate bid to keep the company afloat. Former WorldCom chief financial officer Scott Sullivan and former controller David Myers surrendered to the FBI to face fraud charges in the latest blow to the now bankrupt telecommunications giant and corporate America.
It was the second time in two weeks top executives of large corporations were arrested after their firms filed for bankruptcy protection.
U.S. Magistrate James Francis released Sullivan on $10 million bond and Myers on $2 million bond at a brief hearing in federal court in Manhattan. The defendants and their lawyers were not immediately available for comment.
A criminal complaint alleges that Sullivan directed Myers to conceal about $3.8 billion in expenses by dispersing the debts throughout the company’s capital accounts.
As the scheme was unraveling in June, Myers told WorldCom accountants that the company “could not continue with the cost structure at the current levels and that if the cost structure did not change, the company ‘might as well shut the doors,”‘ the complaint said.
Federal agents led the pair out of New York’s FBI headquarters in handcuffs at midmorning enroute to the courthouse. The men, both wearing dark suits, did not speak to a swarm of reporters; two passersby clapped.
The seven-count complaint charges them with securities fraud, conspiracy, and filing false statements with the Securities and Exchange Commission.
Each securities fraud and false statement charge carries a maximum prison sentence of 10 years. If convicted of conspiracy, the men face up to five years in prison.
The complaint alleges the defendants never disclosed the questionable accounting practices to external auditors, including Arthur Andersen.
The secret transfers, which began in 2001, “allowed WorldCom to defer recognizing a substantial portion of its current operating expenses, thereby allowing WorldCom to report higher earnings,” court papers said.
Sullivan and Myers were dismissed from WorldCom in June after the company admitted it falsely accounted for nearly $4 billion in expenses, allowing executives to continue reporting profits when the company was actually losing money.
The charges put pressure on the pair to tell investigators what they know about their former boss, former chief executive Bernard Ebbers, who also is being investigated by prosecutors.
The SEC filed civil fraud charges against WorldCom, citing “accounting improprieties of unprecedented magnitude.”
The Justice Department has also considered taking the more drastic step of charging WorldCom as a corporation. A conviction of the long-distance phone company could drive it out of business.
WorldCom, which owns MCI, the nation’s second-largest long distance carrier, filed for bankruptcy under Chapter 11 on July 21, the largest such filing in U.S. history.
U.S. Bankruptcy Judge Arthur Gonzalez approved $2 billion in financing to keep WorldCom operating as it reorganizes its finances. He also granted the Justice Department’s request for an independent examiner to ensure an honest accounting of the company’s value and investigate for mismanagement, irregularities and fraud.
In last week’s case, John Rigas, founder of cable company Adelphia Communications, and two of his sons were charged in Manhattan with securities and bank fraud for allegedly diverting hundreds of millions of dollars from company accounts for their personal benefit.
White House spokesman Ari Fleischer said Thursday that President Bush “is determined that people who break America’s laws and engage in corporate practices that are corrupt will be investigated, and will be held liable, will be held accountable and will likely end up in the pokey, where they belong.”