Ex-WorldCom Exec Pleads GuiltyJan 1, 2002 | Newsday Buford "Buddy" Yates, former WorldCom director of general accounting pleaded guilty to conspiracy and securities fraud today, saying he knowingly over-inflated WorldCom's net revenue by $800 million which his lawyer said were approved of by "the highest levels of WorldCom management."
Yates, 46, a portly man with a goatee and graying hair, refused to identify who had directed him to file false reports with the Securities and Exchange Commission for the last three quarters of 2001, but indicated in his plea that he had expressed his concerns to his supervisors.
He said he and other employees became aware in Oct., 2000, following the firm’s third quarter, that WorldCom's expenses were higher than they had been in previous quarters and higher than securities analysts had predicted. Yates said unnamed supervisors directed him to make adjustments that reduced the firm's reported expenses and increased its net revenue.
"I realized that the accounting department at WorldCom was not implementing any of the changes that ordinarily would be made with any major change in accounting practices," Yates told U.S. Magistrate-Judge Andrew Peck speaking quickly and in a voice that was barely audible.
"I came to believe that the adjustments I was being directed to make in WorldCom's financial statements had no justification and contravened generally accepted accounting principles," he said.
"I concluded that the purpose of these adjustments was to incorrectly inflate WorldCom's reported earnings in order to meet the expectations of securities' analysts and mislead the investing public of the company's financial condition," Yates said.
Yates, of Brandon, Miss., remains free on $500,000 personal recognizance bond. He faces up to five years in prison for the conspiracy charge and least at least a $250,000 fine and faces up to 10 years in prison and a $1 million fine for the securities fraud when he is sentenced January 9, 2003 by U.S. District Court Judge Barbara Jones.
But his lawyer suggested that his term could be reduced based on the level of cooperation he gives the office of Manhattan U.S. Attorney James Comey by testifying against other WorldCom executives who directed what has become the largest corporate accounting fraud in the nation's history.
During his plea, Yates did not name which supervisors had directed him to carry out such a plan. His lawyers also refused to identify under whose orders Yates had acted and declined to confirm or deny if it was former CEO Bernard Ebbers or former Chief Financial Officer Scott Sullivan.
The government has indicted Sullivan for ordering that the $3.8 billion in expenses be concealed in such a way to make it appear to investors and analysts that the telecommunications firm was actually more profitable. He has denied wrongdoing and remains free on $10 million bond.
Yates is the second WorldCom executives in two weeks to plead guilty. Last week, David Myers, WorldCom's former controller, pleaded guilty to securities fraud. Court papers filed with the court indicate that two other executives, Betty Vinson and Troy Normand, followed orders from Sullivan and Myers to hide the $3.8 billion in operating expenses as capital expenses.
Yates' lawyer, David Schertler said his client was "remorseful" and would continue to cooperate with investigators in their ongoing probe of WorldCom.
"Mr. Yates' role in the events that led him here today was limited to following the direction and orders of his immediate supervisors," Schertler said.
"He was ordered tomake certain accounting adjustments in the financial statements issued by WorldCom," Schertler said.
"He strenuously objected to making those adjustments. And, when he raised those objections he was told they had been approved at the highest levels of WorldCom management. Mr. Yates did not originate this idea. He did not agree with it. He did make the adjustments ... he did not profit from it ... His big mistake was that he did not go outside that chain of command," Schertler added.