Ebbers Pushed Others to ‘Hit Numbers,’ CFO Says
Former WorldCom Inc. chief Bernard J. Ebbers refused to alert Wall Street to WorldCom’s deepening financial crisis, despite repeated warnings that investors were being misled, the chief witness against him testified Tuesday.
Ebbers instead made it clear that he wanted company profits to match the projections from stock analysts, former WorldCom finance chief Scott D. Sullivan testified in Ebbers’ federal trial.
“There was one thing he said each time....We have to hit our numbers,” Sullivan said, adding later, “I told Bernie, ‘This isn’t right.’ ”
Ebbers is charged with fraud, conspiracy and other charges stemming from the company’s $11-billion accounting fraud. He faces at least 30 years in prison if convicted, a potential life sentence for the 63-year-old Ebbers. The company has since been reorganized as MCI Inc.
Ebbers’ lawyers have maintained that he was not involved in complex financial matters and was unaware of fraud being carried out by underlings.
Sullivan did not testify that Ebbers specifically ordered the doctoring of the books. But he described Ebbers as fully informed about the accounting manipulation and tacitly condoning it with his “hit-the-numbers” mantra.
In his second day on the stand, Sullivan recounted how WorldCom’s once-bright fortunes turned “dramatically” in late 2000 after a failed merger attempt combined with the collapse of the dot-com economy.
Sullivan said he briefed Ebbers on the deteriorating situation and specifically informed him before the company issued its first set of bogus profit figures in the third quarter of 2000.
Sullivan said Ebbers grew angry when Sullivan handed him a document showing the company’s true operating statistics, which indicated weak revenue and high expenses.
In response, Sullivan said, he fudged the numbers -- making “adjustments” tailored to meet analyst projections -- and gave them to Ebbers a few days later.
Though WorldCom had previously been “aggressive” in its accounting, Sullivan testified, the new figures bore no relation to reality. For example, a reserve account was listed as operating income, he said. Bogus expense adjustments cut reported costs by $700 million, he added.
After WorldCom released the bogus statistics in October 2000, there were rumblings about unhappy employees in the accounting department, and two employees threatened to quit, Sullivan said.
The finance chief met with them, apologized for the deceit and promised that WorldCom would come clean with Wall Street going forward.
“I was sorry that they were pressured” to manipulate the accounting, Sullivan said. “I said it wouldn’t happen in the future.”
Sullivan also told Ebbers about the employees’ dissatisfaction.
“He was very quiet,” Sullivan said. “He looked down and said, ‘We shouldn’t be making adjustments. We’ve got to get the operations of this company going. We shouldn’t put people in this position.’ ”
Sullivan said he was told by another company executive that Ebbers had apologized to him for the deceit.
Sullivan also testified that Ebbers agreed to issue an earnings warning for the fourth quarter of 2000 and the following year, but continued to mislead investors with unrealistically high projections.
