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WorldCom ex-CEO sentenced for fraud
NEW YORK - From humble roots as a milkman and motel owner, Bernard J. Ebbers built a small telecommunications company into an industry giant - becoming a symbol of what a brash entrepreneur could do in the technology boom of the late 1990s.
Yesterday, Ebbers became a symbol of a different kind when a federal judge sentenced the former WorldCom Inc. chief executive to 25 years in prison - essentially a life sentence - for spearheading the largest accounting fraud in U.S. history.
In a wave of corporate wrongdoing cases since the 2001 Enron Corp. scandal, it was the harshest penalty yet.
In a bid for leniency, defense lawyer Reid Weingarten told U.S. District Court Judge Barbara Jones that Ebbers never intended any harm and did not do anything to enrich himself.
But former WorldCom salesman Henry J. Bruen Jr., granted permission by the judge to address the court, spoke of the "untold human carnage" that he and thousands of others suffered as they lost their jobs and struggled to find work after disclosure of WorldCom's $11 billion accounting fraud.
"This was sheer hell, and I was totally devastated physically and emotionally from the experience," said Bruen, 47.
Gino Cavallo, who still works for WorldCom, sat in the courtroom as an observer. Cavallo said he lost tens of thousands of dollars when the stock sank after disclosure of the accounting fraud.
"He defrauded us, and we wanted to see justice done," Cavallo said outside court.
In addition to thousands of jobs lost, prosecutors have contended that Ebbers' actions cost WorldCom shareholders more than $2 billion in losses.
Weingarten, his voice at times cracking with emotion, told the judge that Ebbers was unlike other executives accused of misdeeds. Ebbers didn't loot WorldCom as a personal "piggy bank," Weingarten said, and often made charitable donations anonymously.
"There are no plaques on the wall that Bernard J. Ebbers built this gymnasium or built that educational facility for disadvantaged children," Weingarten said. "That's not who he is."
Jones said she spared Ebbers from a maximum penalty of 30 years to life because of his charitable work and his heart condition. But Jones said the damage Ebbers inflicted on investors demanded a term of at least 25 years.
"A sentence of anything less would not reflect the seriousness of this crime," Jones said.
Ebbers did not speak in court and refused reporters' questions afterward.
Jones ordered Ebbers to report to prison Oct. 12 and said she would recommend a low-security compound in Yazoo City, Miss. The judge did not immediately rule on a defense request that Ebbers remain free pending an appeal.
Two weeks ago, Ebbers agreed to give aggrieved investors almost all his remaining cash and assets - with an estimated value of up to $45 million - in what legal experts viewed as a bid to win leniency from the judge.
"It bought him nothing," said attorney George B. Newhouse Jr., a partner at Thelen Reid & Priest in Los Angeles.
The sentences in a series of recent high-profile white-collar crime cases have ranged from the 10-month term (half of that under house arrest) handed down to lifestyles entrepreneur Martha Stewart, to the 20-year sentence given to Timothy Rigas, former chief financial officer of Adelphia Communications Corp. Rigas' father, Adelphia founder John Rigas, was sentenced to 15 years.
The Ebbers sentence stood in stark contrast to those imposed on the last generation of corporate felons who were prosecuted in Wall Street's insider-trading scandal of the late 1980s and early 1990s, said Kirby Behre, a partner at law firm Paul Hastings Janofsky & Walker.
Junk-bond king Michael Milken, for example, was sentenced to 10 years in prison after pleading guilty to securities violations, but that was later cut to two years, and Milken served 22 months.
Even with credit for good behavior in prison, legal analysts say, Ebbers would still likely have to serve at least 21 years.
"The pendulum has swung from a slap on the wrist to a death sentence," Behre said. A 25-year sentence, he added, "is usually reserved for a drug lord involved in a couple of murders."
Ebbers was convicted last March of securities fraud, conspiracy and filing false documents with regulators in his role as chief executive of WorldCom, which admitted in 2002 that its accounting was fraudulent.
Ebbers has claimed that the fraud was carried out by underlings, notably former finance chief Scott D. Sullivan and that he didn't realize the books were being doctored.
Sullivan pleaded guilty to his role in the fraud last year and became the star witness against Ebbers. He is scheduled to be sentenced Aug. 4 and faces a term of up to 25 years but will get a recommendation of leniency from prosecutors because of his cooperation.
On the stand, Ebbers portrayed himself in homespun terms, saying he was a financial neophyte who was embarrassed to admit that he didn't understand how WorldCom's technology worked.
Prosecutors painted a different picture, saying Ebbers was a demanding boss with a temper who could be petty with employees. Testimony revealed that Ebbers eliminated free coffee because he was worried that employees were taking it home and that he ordered bottled-water dispensers to be secretly filled with tap water.
After the Ebbers trial, jurors said they doubted Sullivan's veracity but still couldn't see how Ebbers - the man who built WorldCom from an upstart phone company to a telecommunications giant - could have been unaware of the fraud.
A lackluster student from a poor family, Ebbers was not an obvious candidate to be a corporate titan. He held various jobs over the years, including as a milkman and a bouncer.
WorldCom had its roots in a troubled Mississippi telecom company that Ebbers said he invested in at the request of some friends. Through a series of daring acquisitions, he built the company into the rechristened WorldCom, a global telecom powerhouse second only to AT&T Corp.
But unknown to investors, WorldCom was cooking the books. Revenues were overstated, and expenses were falsely listed as capital expenditures to boost the bottom line.
Sullivan testified that he fudged the numbers but did so at the direct command of Ebbers, who repeatedly told him to "hit the numbers" that Wall Street expected to keep stock prices rising.
The company was challenged by new competition in the late 1990s. In June 2002, an internal auditor found bookkeeping errors and the company filed for bankruptcy protection July 21, 2002, listing $104 billion in assets.
The company, since being renamed MCI Inc., is being acquired by Verizon Communications Inc.
The Los Angeles Times is a Tribune Publishing newspaper.