WorldCom Backed Ebbers’ Loans
Personal bankers for WorldCom Chief Executive Bernard J. Ebbers once threatened to sell his stock in the telecommunications company unless WorldCom itself put up $75 million to back his loans, a banker testified Tuesday.
Jayne Hammond, who handled Ebbers’ personal account at Bank of America, said the bank issued the threat after Ebbers could not meet a 2000 margin call -- a demand for money or new collateral to support the loans.
Ebbers personally borrowed $400 million from the bank, much of it backed by WorldCom stock. But the company’s stock was on a relentless decline in 2000 and 2001, and Ebbers was forced to pony up more and more shares to secure his loans.
In an August 2000 margin call, Ebbers forked over his final 582,000 shares of stock -- certificates that held “sentimental value” and that he was believed to keep in his desk drawer, Hammond said.
Federal prosecutors contend that Ebbers oversaw an $11-billion accounting fraud at WorldCom, obsessed with keeping its stock in the good graces of Wall Street -- and partly because the stock was collateral for his personal loans.
On Oct. 13, 2000, Bank of America made yet another margin call, and WorldCom board members agreed to guarantee $75 million of his debt, Hammond testified at Ebbers’ fraud trial in Manhattan federal court.
With the bank still concerned about the falling stock price, “there was a lot of effort on my behalf toward getting this guarantee extended,” she said.
On Nov. 1, 2000, Hammond said she demanded that WorldCom finalize the guarantee by about 2 p.m. or else the bank would begin selling shares of Ebbers’ stock.
WorldCom Chief Financial Officer Scott D. Sullivan approved the guarantee. WorldCom later backed up $100 million, then $150 million, of Ebbers’ loans, and eventually assumed his entire personal debt to Bank of America.
WorldCom is now suing Ebbers to recover the $400 million.
Prosecutors called Hammond to the witness stand in an effort to bolster testimony last week by David Myers, the company’s former controller, who told jurors that Ebbers expressed worry about the margin calls at meetings.
Myers testified that Ebbers was concerned that if WorldCom’s stock fell below the mid-teens, margin calls might kick in and “everything I’ve worked for since I’ve joined WorldCom will basically be wiped out.”
Prosecutors also displayed for jurors Bank of America documents that assessed the huge loans extended to Ebbers, including one that noted his wealth and cash flow depended on the company’s health.
“In the event that the company and stock deteriorate, Ebbers could become unable to repay all of his direct and indirect debt,” one document said.
Earlier Tuesday, Myers completed his testimony, saying he had no direct knowledge that Ebbers knew about the accounting tricks used at the company to hide out-of-control expenses.
Myers had told jurors that Sullivan told him Ebbers was aware accountants were covering up expenses by moving them off WorldCom income statements.