Financial officer says Ebbers told him to cook the books
NEW YORK (AP) – The former finance chief of WorldCom testified Tuesday that CEO Bernard Ebbers repeatedly ignored evidence that company finances were deteriorating and simply said, “We have to hit our numbers.” Scott Sullivan said he told Ebbers the only way to meet Wall Street estimates for the third quarter of 2000 would be to book improper accounting entries to boost revenue and cover up expenses.
“He looked at the information, and he didn’t say a lot,” Sullivan said. “He looked up and said, ‘We have to hit our numbers.”‘
Sullivan said he interpreted the remark as an instruction to go ahead with the improper entries. When accountants revised the third quarter figures to meet Wall Street estimates, Sullivan said he showed Ebbers the new numbers.
“He said, ‘We have to hit our numbers this quarter,’ and that’s all he said,” Sullivan testified.
Later, after two accountants threatened to quit, Sullivan said Ebbers told him: “We shouldn’t be making these people make these adjustments.”
The government contends the fraud continued through 2000, 2001 and into 2002, all at Ebbers’ direction.
Sullivan, the star government witness at Ebbers’ fraud trial, said he confronted Ebbers beginning in August 2000, when the burst of the dot-com bubble had contributed to sharply lower revenue growth for WorldCom.
He said Ebbers twice rejected lowering third-quarter projections, first saying WorldCom could not do it without explaining the circumstances and then saying the company could wait to lower forecast until the next quarter.
Sullivan, who took the stand Monday, became the first government witness out of nine so far to directly implicate Ebbers in the $11 billion WorldCom accounting fraud, saying Ebbers had worked with him in cooking the company’s books.
On Tuesday, prosecutors began leading Sullivan through testimony about each of the quarters in which the fraud is alleged to have occurred, beginning with the summer of 2000.
At the time, with dot-com clients vanishing, WorldCom revenues were worsening quickly, and expenses for so-called line costs – the fees WorldCom paid smaller telephone carriers – were soaring.
But Sullivan said Ebbers regularly pressured him to meet revenue and earnings targets to please Wall Street.
“The source of the pressure was Bernie, and the source of the pressure was also the marketplace,” Sullivan said.
Prosecutors have said Ebbers was obsessed with keeping the company in high regard on Wall Street, at least in part to keep its stock price high and protect personal loans that were backed by WorldCom shares.
Sullivan said WorldCom adjusted some of its revenue figures, such as credits for overbilling, with the goal of meeting Wall Street analysts’ growth expectations.
Sullivan testified he presented monthly revenue reports to Ebbers in mid-2000, and Ebbers used phrases like “This is horrible, this is terrible results,” to express his dissatisfaction.
Ebbers is used of fraud, conspiracy and submitting false filings to the Securities and Exchange Commission – in effect overseeing the enormous fraud that sank WorldCom into bankruptcy in 2002. The company changed its name to MCI Inc. after emerging from Chapter 11 last spring.
The defense has portrayed Ebbers as uncomfortable with accounting details, preferring to remain a visionary leader.
But Sullivan’s testimony has suggested he was a hands-on manager who deftly analyzed financial figures – and who was fanatical about controlling even the most minor of expenses, such as coffee filters.