Oklahoma Charges MCI, Ebbers
State launches legal action against bankrupt companyAug 27, 2003 | www.msnbc.com Oklahoma prosecutors Wednesday filed the first criminal charges against former WorldCom Inc. chief Bernard Ebbers, part of a wider complaint that also named the bankrupt telecommunications company now known as MCI and other one-time top executives.
Oklahoma Attorney General Drew Edmondson describes the negative effect of Worldcom’s collapse on the Oklahoma pension fund system as “staggering.”
Meanwhile, The Wall Street Journal reported on its Web site Wednesday that Edmondson said California, Oregon and West Virginia may join his state in filing criminal charges.
Although this marks the first criminal charges against Ebbers and the company itself, other former WorldCom executives have been charged in federal court, including ex-chief financial officer Scott Sullivan, who was also named in the Oklahoma complaint.
Four other ex-executives who have pleaded guilty to federal charges and are helping federal prosecutors are also charged in Oklahoma: David Myers, Buford Yates Jr., Betty Vinson and Troy Normand.
The charges against the former executives who have one week to appear voluntarily in court in Oklahoma City carry up to 10 years in prison and a $10,000 fine. The company could be fined.
Ebbers’ attorney Reid Weingarten said he expects Ebbers to be exonerated. He pointed out that federal investigators have spent more than a year digging into WorldCom without charging Ebbers.
“This is not because of any lack of prosecutorial zeal,” Weingarten said. “Rather, it is because of a total lack of any evidence that Mr. Ebbers committed crimes. It is not apparent what the local Oklahoma authorities think they have uncovered that the federal authorities have overlooked.”
Also Wednesday, Oregon sued MCI in hopes of recouping the $24 million loss on WorldCom bonds that were bought by three state investment funds. The lawsuit also accuses bond underwriter Salomon Smith Barney of helping WorldCom mislead investors.
No criminal charges are planned in Oregon, but attorney general spokesman Kevin Neely said that option was being left open.
These cases come as MCI is trying to move on from the accounting scandal, which has already led to a $750 million settlement with the Securities and Exchange Commission.
The company has changed its name, moved its headquarters to Ashburn, Va., and hired new leadership. On Tuesday, court-appointed monitor Richard Breeden, a former SEC chairman, established several protections for shareholders that MCI will adopt in a new corporate charter.
MCI’s general counsel, Stasia Kelly, said she does not believe the Oklahoma charges will affect the bankruptcy process.
“Today’s action against the company would only punish our 20 million customers and 55,000 employees 2,000 of which work in Oklahoma,” Kelly said in a statement. “MCI has made tremendous progress over the past year and we are working hard to put our house in order.” She added that the company is “committed to doing all the right things to ensure what happened in the past can never happen again.”
However, Edmondson said the company has not “purged itself of wrongdoing” in bankruptcy. Rivals of MCI, the No. 2 long-distance carrier after AT&T Corp., have made similar complaints, since MCI will emerge from bankruptcy with its debts dramatically reduced.
“I don’t think this company has been punished,” Edmondson said. “I think it’s been rewarded for its bad acts.”
The complaint alleges WorldCom executives defrauded Oklahoma investors by understating expenses and overstating income. False statements were entered in the annual report to the SEC filed March 30, 2001, the complaint stated.
The complaint said Sullivan instructed Myers to make journal entries crediting certain expense accounts. Yates, Vinson and Normand made the entries at Myers’ direction, it said.
To make the entries balance on WorldCom’s ledger, the employees debited various reserve and capital accounts without having supporting documentation or “any proper business rationale for the entries,” according to the complaint.
The complaint says Ebbers was generally responsible for what went on at WorldCom, though it does not discuss his actions in detail.
“By falsifying information, the company looked stronger on paper than it really was,” Edmondson said. “Investors counted on this information when buying WorldCom securities. The company lied. These employees lied. The law was broken. It’s just that simple.”
Edmondson said that immediately after the scandal broke, he asked his staff to review state investments in WorldCom and look to see if any state laws had been broken. He said his office developed the case from “our own work that we’ve done,” from press accounts and transcripts obtained in the federal case in New York.
He said there is nothing unusual about Oklahoma securities laws and would be surprised if other states do not take similar action.
Although MCI has settled the SEC’s civil case, the company has been under investigation from several states. It also faces a federal criminal investigation and was recently barred from signing new contracts with the U.S. government.
In New York, U.S. Attorney James Comey, who is prosecuting Sullivan and the four executives who have pleaded guilty, said he was disappointed that Oklahoma authorities did not inform him of Wednesday’s complaint.
“Competing interests can impede and delay the administration of justice,” he said. “We are hopeful Oklahoma’s action will not interfere with the prosecution of the five individuals already charged.”
The complaint is the latest scar on the career of Ebbers, who turned a small Mississippi phone company into an aggressive international carrier with important phone and Internet networks.
According to reports commissioned by courts and the company after Ebbers resigned last year, Ebbers pushed WorldCom into questionable moves with little oversight from a rubber-stamp board. Ebbers got $400 million in personal loans from the company, pledging his own stock as collateral.