Witness Says He Warned Ebbers

The former finance chief of WorldCom testified Wednesday that he warned Chief Executive Bernard J. Ebbers at a 2001 dinner meeting that accountants would have to classify expenses as assets to meet Wall Street’s expectations.

Scott D. Sullivan told jurors at Ebbers’ fraud trial that he made the suggestion at a steakhouse in Washington in March 2001 and told Ebbers “that it wasn’t right, that it was a shortcut to earnings.”

“Did Mr. Ebbers tell you not to make the shortcut adjustment that you had proposed?” federal prosecutor William Johnson asked Sullivan.

“No, he did not,” Sullivan said. He said Ebbers responded by saying WorldCom had to get its revenue going again.

Shortly thereafter, WorldCom accountants covered up more than $700 million in expenses for the first quarter of 2001 by classifying them as capital expenditures, treating operating expenses as long-term investments in the network. Such investments raise the value of assets, and the expense is deducted over time as the asset ages.

The procedure was a shift from the previous two quarters, when accountants had been hiding expenses by drawing on reserve accounts, sometimes entirely unrelated to the expenses.

Sullivan, who has pleaded guilty in the $11-billion WorldCom accounting fraud scandal, was testifying in federal court in New York for a third day as the star government witness against Ebbers, who is accused of orchestrating the fraud.

Ebbers, 63, is charged with fraud, conspiracy and making false Security and Exchange Commission filings -- which carry up to 85 years in prison. He has denied wrongdoing.

WorldCom filed the nation’s largest bankruptcy in 2002, emerging last year under the name MCI Inc.