WorldCom Auditor ‘Blew It,’ Jurors Told
Eager to please WorldCom Inc. executives and line its pockets, auditing firm Arthur Andersen failed investors by missing the enormous fraud unfolding at the big telecom company, a lawyer for investors said Tuesday.
Lawyer Sean Coffey, delivering his opening statement on behalf of investors who lost billions of dollars in the collapse of WorldCom, said Andersen amounted to “see-no-evil, hear-no-evil, speak-no-evil auditors.”
“It was their job to look under the hood, kick the tires and tell investors this company was doing its job,” Coffey told jurors in U.S. District Court in New York. Instead, he said, Andersen “blew it,” hurting hundreds of thousands of investors.
In sharp contrast, Andersen lawyer Eliot Lauer referred repeatedly to the “hardworking men and women” of the Chicago-based firm as victims of a carefully hidden fraud carried out by corrupt WorldCom executives.
“The fact that an auditor does not uncover a well-concealed management fraud does not mean the auditor was not up to speed,” he said.
Lawyers for the investors, led by New York Comptroller Alan Hevesi on behalf of the state retirement fund, are seeking to recover billions of dollars from Andersen at the civil trial.
More than a dozen investment banks that underwrote WorldCom securities were once defendants in the same lawsuit but agreed to settle the case for about $6 billion.
Twelve former WorldCom board members also will pay more than $24 million out of their own pockets to settle the class-action claim.
Coffey told jurors that Arthur Andersen considered WorldCom a “crown jewel” client and was eager to rake in millions of dollars a year in consulting fees -- a more lucrative business than auditing.
At the same time, Andersen became enamored of WorldCom Chief Executive Bernard J. Ebbers and Chief Financial Officer Scott D. Sullivan, and considered itself part of WorldCom’s “team,” Coffey said.
“They had to make these very demanding, high-profile executives happy,” he said. “It meant not asking too many hard questions. It meant shrugging your shoulders and saying it’s OK.”
Investigators eventually uncovered $11 billion in fraud at WorldCom, which collapsed in 2002 but has since emerged from bankruptcy under the name MCI Inc.
Coffey said he would prove at trial that Andersen violated generally accepted accounting standards from 1999 to 2001.
Lauer, the Andersen lawyer, said the firm had spent more than 10,000 hours a year diligently carrying out audits for WorldCom and always followed industry standards.
And he noted that Ebbers and Sullivan were executives highly respected by Wall Street -- at least before the massive fraud was uncovered -- and that Andersen, like so many others, saw no reason to question their integrity.
“Auditors are not the CIA,” Lauer said. “They are not the FBI. They don’t use lie detectors. They don’t have video cameras hidden in WorldCom. They don’t have informants with tape recorders. They are accountants.”
Andersen, a former Big Five accounting firm, was convicted in 2002 of obstruction for destroying tons of documents related to Enron Corp. late in 2001 while the government was investigating the Houston-based energy firm.
Two weeks ago, Ebbers was convicted of fraud, conspiracy and false regulatory filings. He faces sentencing in June and could spend the rest of his life behind bars.
Five other former WorldCom executives have pleaded guilty in the fraud and are awaiting sentencing.
