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More Charges Filed Against Ex-WorldCom CFO

Apr 16, 2003 | FT.COM

Federal prosecutors on Wednesday filed additional charges against Scott Sullivan, the disgraced former chief financial officer of WorldCom, accusing him of lying in financial statements to secure credit lines worth $4.5bn for the telecommunications group.

The charges of bank fraud and making false statements in connection with loan or credit applications come on top of previous accusations of securities fraud and making false filings with the Securities and Exchange Commission, which were made against Mr Sullivan last August.

hey come almost nine months after WorldCom revealed a $3.8bn accounting fraud that forced the group into bankruptcy.

Estimates of the total fraud have since risen to more than $11bn.

This week the company, which has been renamed MCI, filed a reorganisation plan which puts it on track to emerge from bankruptcy by the autumn.

However, the new charges offer no indication as to whether prosecutors have made any progress in building a case against Bernie Ebbers, WorldCom?s former chairman and chief executive.

No charges have been made against Mr Ebbers.

The new charges against Mr Sullivan, which were unsealed by a grand jury in Manhattan on Wednesday, increase the potential sentence he will face if he is found guilty.

According to the new indictment, Mr Sullivan concealed WorldCom?s true financial position while obtaining two credit facilities with a value of $4.5bn in June last year, a few weeks before the fraud was revealed.

The credit facilities were designed to shore up WorldCom?s balance sheet as it grappled with the collapse in the telecommunications market.

However, the commercial banks involved in the credit facility including Chase Manhattan, Bank of America and Citibank based their lending decisions on WorldCom?s audited financial statements.

Prosecutors allege Mr Sullivan knew the information was misleading when he made a presentation to banks at the Waldorf Astoria Hotel in New York in May 2001.

By that time Mr Ebbers had already agreed to step down.

Under WorldCom?s reorganisation plan, creditors will receive shares and bonds worth about 36 cents in return for every dollar they are owed.

Mr Sullivan, who hadearlier entered a not guilty plea to the previous charges, could not be reached for comment.

He is tentatively scheduled to stand trial in September.

Prosecutors allege Mr Sullivan hid WorldCom?s rapidly deteriorating financial position by reclassifying line expenses as capital expenditures, thereby artificially boosting its profits.

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