WorldCom Finance Chief Says He Lied to the Board
The government’s star witness against former WorldCom Inc. chief Bernard J. Ebbers acknowledged under cross-examination Wednesday that he repeatedly lied to the board of directors about the company’s financial plight and its fraudulent accounting maneuvers.
Scott D. Sullivan, WorldCom’s former chief financial officer, said he misled directors shortly after Ebbers was forced out of the company in April 2002. That concession could potentially undercut Sullivan’s claim in testimony last week that he wanted to disclose WorldCom’s troubles to investors but was held back by Ebbers.
Defense attorney Reid Weingarten seized on Wednesday’s testimony to suggest that Sullivan was the mastermind behind the $11-billion accounting fraud and was implicating Ebbers only to get a reduced prison term.
“If you believe something is in your interest, you’re willing and able to lie to accomplish it, isn’t that right, Mr. Sullivan?” Weingarten asked.
Sullivan, 43, repeated that he deceived the directors, but didn’t directly answer the question.
Ebbers, WorldCom’s former chief executive, is charged with fraud and other charges stemming from the telecommunications company’s $104-billion bankruptcy, the biggest in U.S. history. He faces at least 30 years in prison if convicted.
Sullivan testified in U.S. District Court in Manhattan last week that Ebbers tacitly approved of the accounting trickery that WorldCom used from 2000 to 2002 to meet Wall Street earnings targets. He described how WorldCom systematically inflated its revenue by listing money taken from reserve accounts as operating income, and understated its expenses by characterizing them as capital expenditures.
Sullivan claimed that Ebbers pressured him to cook the books, in part because his boss needed to keep the stock price high because he had used it as collateral on millions of dollars of personal bank loans.
WorldCom, which changed its name to MCI Inc., emerged from bankruptcy protection last April. It agreed this week to be acquired by Verizon Communications Inc.
Sullivan is the only person who has testified to having direct conversations with Ebbers about the alleged fraud. Ebbers disdained e-mail, leaving little physical evidence that could indicate whether he was aware of any improper accounting.
Sullivan has pleaded guilty to federal fraud charges and faces up to 25 years in prison. He is testifying as part of an agreement with prosecutors that could trim his sentence.
Beginning his cross-examination Wednesday, Weingarten played a videotape of an investors meeting in which Sullivan lied about the company’s growth forecasts.
During the meeting, Sullivan answered an investor’s question that had been directed at Ebbers. Weingarten pointed out that Sullivan answered willingly, lying in the process, under no apparent pressure from Ebbers.
Weingarten also went into detail about Sullivan’s deal with prosecutors. In return for his testimony, the government may write a letter to the judge overseeing Sullivan’s case, asking for leniency on his behalf.
“Is it fair to say your whole future turns on this letter?” Weingarten asked.
“A lot of my future turns on this letter,” Sullivan replied.
Weingarten also pointed to alleged discrepancies between Sullivan’s testimony during the trial and claims he previously made against Ebbers in his written plea-bargain request, in an effort to show that Sullivan has embellished his account to help the prosecution.
Under questioning, Sullivan acknowledged that Ebbers sometimes asked him to explain complex financial issues. The defense contends that Ebbers didn’t understand the financial machinations that Sullivan employed to make WorldCom’s numbers look strong.
Sullivan also said that he wasn’t truthful when he failed to mention his use of cocaine and marijuana on a government security clearance form in 2000.
U.S. District Judge Barbara Jones has ruled that the defense also may query Sullivan about alleged “marital infidelities,” but Weingarten didn’t broach that issue Wednesday.
Cross-examination is set to continue today.
