Judgment Day Coming Sooner for EbbersAug 27, 2003 | www.thestreet.com Oklahoma on Wednesday became the first jurisdiction to bring a criminal case against disgraced former WorldCom CEO Bernie Ebbers. The complaint comes as Ebbers the top former WorldCom honcho who hasn't been charged in an ongoing federal fraud case against the bankrupt telco.
Citing $64 million in state pension-fund losses and seething that heads haven't rolled in the WorldCom case, Oklahoma's attorney general charged the company and six former officials with fraud. The case against the company could erect another hurdle in the path of the freshly renamed MCI, which seeks to emerge from the nation's largest-ever bankruptcy case this fall.
The 15-count indictment, filed in the Oklahoma country district court, borrows heavily from the U.S. Justice Department's pending case and brings no new allegations to the matter.
Still, Attorney General Drew Edmondson made a splash with the filing, which features charges including fraud and making false statements. The state aims to prove that WorldCom and the former execs willfully presented investors falsified information about the company, based on which the company offered the sale of its stock.
Oklahoma's thirst for prairie justice stems from a growing impatience with the pace of the federal case and the lack of accountability amid rampant corporate corruption.
"There's a lot of frustration in the country over how slow the federal government has moved in these corporate scandals," says Georgetown University Law School professor Donald Langevoort. "That's proven to be a recipe for what is a political choice to indict."
Edmondson says he is giving the defendants a week to report to Oklahoma court or face arrest. The other defendants are former former CFO Scott Sullivan, ex-accounting chief Buford Yates, onetime controller David Myers and former accounting executives Betty Vinson and Troy Norman.
All of those people other than Ebbers and Sullivan have pleaded guilty and are cooperating with federal prosecutors. Attorneys for Ebbers have said their client will be exonerated. Sullivan has insisted he is innocent and his case is expected to go to trial. Ebbers, WorldCom's founder, hasn't been charged by the Justice Department.
WorldCom was among the leading telecom companies and a hot name on the Nasdaq as Ebbers led it through a series of acquisitions in the late 1990s. But the company eventually crumbled under the weight of massive accounting missteps that took place under Ebbers' watch.
In a press release, a WorldCom attorney said the company intends to cooperate with Oklahoma officials and that she didn't think the case would derail efforts to emerge from bankruptcy.
Outside of the $64 million in estimated losses taken by Oklahoma state pension funds and the uncounted losses among investors in the state, Edmondson said there was nothing unique in his case against WorldCom. He said he wouldn't be surprised if other states filed similar charges, but he didn't name any possible states.
A spokeswoman at the New York attorney general's office said they had no comment on the Oklahoma case and had no plans to bring their own charges at this time.
Through a spokesman, Connecticut Attorney General Richard Blumenthal said he would "continue working with the Oklahoma attorney general, as well as other state and federal law enforcement authorities" as he considered "appropriate action."
"From what I can tell, Oklahoma has no greater connection to WorldCom than any other state," said Georgetown's Langevoort. "This case is born of frustration, but if Oklahoma recovers a substantial amount of money, then clearly the other states will jump in."
The risk, says Langevoort, is that the process could get out of hand if attorneys general from every state were to bring cases any time executives caused losses in state investments. "Then we'd have a legal free-for-all," he said.
In April, WorldCom moved its headquarters to Ashburn, Va., from Clinton, Miss., and reclaimed the name MCI, in the wake of an $11 billion accounting scandal that led to its Chapter 11 filing a year ago and the ouster of its top management. Last month, U.S. District Judge Jed S. Rakoff approved of a $750 million settlement between federal regulators and WorldCom. This was the largest such settlement in history.
The settlement help remove one of the larger obstacles to MCI planned emergence from Chapter 11, starting with a Sept. 8 hearing in a New York bankruptcy court. On Tuesday, a court-appointed monitor, Richard Breeden, issued a 78-item list of recommendations to help steer the company down a more ethical path.