Witness: Ebbers Unaware of Fake Entries

The former chairman of WorldCom Inc. testified Thursday that finance chief Scott D. Sullivan told him in 2002 that Chief Executive Bernard J. Ebbers did not know about improper accounting entries.

Bert Roberts, who held the title of honorary chairman at the time, said he questioned Sullivan on June 20, 2002, as WorldCom’s massive accounting fraud was coming to light.

“I asked Scott if Bernie knew,” Roberts testified in U.S. District Court in Manhattan. “And Scott’s answer to me was that Bernie did not know of the journal entries.”

Roberts took the stand as defense lawyers continued to present their case on behalf of Ebbers, who is accused of orchestrating the $11-billion accounting fraud that drove WorldCom into bankruptcy protection in 2002. It emerged from bankruptcy as MCI Inc.

Sullivan testified earlier in the trial that Ebbers was fully aware of the fraud and that he repeatedly told Ebbers the accounting was improper.

Earlier Thursday, former WorldCom internal auditing chief Cynthia Cooper described how she and others gradually discovered that accountants were hiding expenses by classifying them as capital expenditures, which do not appear on a company’s income statement.

She also spoke of a conversation in which Sullivan became angry at her for taking questions about accounting to Arthur Andersen, WorldCom’s outside auditor, rather than to accounting officials inside the company.

“At that point,” Cooper said, referring to the spring of 2002, “I would say he was angry and aggravated.”

A third defense witness who handled mergers and acquisitions for WorldCom testified Thursday that Ebbers never ordered him to stop talking to potential partners.

“No, we were working very hard during that period of time,” said the witness, Bill Grothe, who was vice president for corporate development.

On cross-examination, Grothe admitted he had no knowledge of the accounting decisions at WorldCom and that Ebbers helped him get his current job at another company.

Ebbers is accused of fraud, conspiracy and making seven false filings to the Securities and Exchange Commission.