CEO’s Steep Rise, Swift Fall End in 25-Year Prison Term
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.
On Wednesday, Ebbers became a symbol of a different kind when a federal judge sentenced the former WorldCom Inc. chief executive to 25 years in prison for spearheading the largest accounting fraud in U.S. history.
In a wave of corporate wrongdoing cases since the 2001 Enron scandal, it was the harshest penalty yet.
The 6-foot-4-inch Ebbers slumped in his chair and sniffled audibly as his wife, Kristie, cried steadily and blotted her eyes with a tissue. After the hearing ended, the couple embraced and briefly sat with their lawyers in the near-empty courtroom.
In a bid for leniency, defense lawyer Reid Weingarten told U.S. District Judge Barbara Jones that Ebbers had never intended any harm and had not done anything to personally 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 the company, which is now known as MCI Inc., sat in the courtroom as an observer. Cavallo said he lost tens of thousands of dollars when WorldCom’s stock sank after the fraud came to light.
“He defrauded us and we wanted to see justice done,” Cavallo said outside court.
In addition to thousands of jobs lost, prosecutors contended, 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 penalty of 30 years to life in prison, which sentencing guidelines would have allowed, because of his charitable work and his heart condition. But the judge 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, 63, did not speak in court and refused to answer 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., so he could be close to family.
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 of his remaining cash and assets -- with an estimated value of as much as $45 million -- in what legal experts viewed as a bid to win leniency from the judge.
“It bought him nothing,” noted attorney George B. Newhouse Jr., a partner at Thelen Reid & Priest.
The sentences in a series of recent high-profile white-collar crime cases have ranged from a 10-month term (half of that under house arrest) handed down to lifestyles entrepreneur Martha Stewart, to a 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 given 10 years in prison after pleading guilty to securities violations, but that sentence was later cut to two years, and he served 22 months.
Even with credit for good behavior in prison, legal analysts say, Ebbers would probably serve at least 21 years.
“The pendulum has swung from a slap on the wrist to a death sentence,” Behre said, referring to the fact that Ebbers could be in prison well into his 80s.
A 25-year sentence, Behre added, “is usually reserved for a drug lord involved in a couple of murders.”
Ebbers was convicted in March of securities fraud, conspiracy and filing false documents with regulators in his role as CEO of WorldCom, which admitted in 2002 that its accounting was fraudulent.
Ebbers 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 as long as 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. According to testimony, Ebbers eliminated free coffee because he worried that employees were taking it home and he ordered bottled-water dispensers to be secretly filled with tap water.
After 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 goliath -- 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 bounced around in various jobs for years, including working 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 actual 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 in July 2002, listing $104 billion in assets.
MCI is being acquired by Verizon Communications Inc.
Weingarten said outside court that he would point to several factors in pressing an appeal, including the judge’s refusal to grant immunity to several potential witnesses who the defense claimed would have backed up Ebbers but who refused to testify for fear of prosecution.
“We can’t wait to appeal this case,” Weingarten said. Even so, outside attorneys characterized an appeal as a long shot.
Weingarten also said Ebbers had been unfairly cast as an emblem of corporate wrongdoing.
“The problem with this case from day one [was that] Bernie Ebbers was transformed into a symbol, a distorted picture of corporate corruption,” Weingarten said. “That’s not Bernie Ebbers.”
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Hard time
The 25-year sentence given to former WorldCom chief Bernard J. Ebbers exceeds those of other prominent executives convicted of white-collar crimes. A sampling:
John and Timothy Rigas: The Adelphia founder and his son Timothy were sentenced to 15 years and 20 years, respectively, for looting the cable company and lying about its finances.
Frank Quattrone: The former star investment banker for Credit Suisse First Boston was sentenced to 18 months for obstruction of justice.
Andrew S. and Lea Fastow: In plea deals, Enron’s former chief financial officer was sentenced to 10 years and his wife one year for their roles in the company’s 2001 collapse.
Martha Stewart: The lifestyles entrepreneur was sentenced to five months in prison and five months of house arrest afer she was convicted of obstruction of justice.
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Sources: Associated Press, Times research
Times wire services were used in compiling this report.
