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WorldCom Report Suggests Ebbers Knew of Accounting

Mar 12, 2003 | Wall Street Journal

Nine months after prosecutors opened an investigation into WorldCom Inc.'s (WCOEQ) massive accounting fraud, an internal report is raising fresh suspicions that Bernard Ebbers, the company's former chief executive, knew about the irregular accounting that erupted into scandal, Wednesday's Wall Street Journal reported.

Now, federal prosecutors in Manhattan have asked WorldCom to delay releasing the report because it could harm a continuing investigation into what Mr. Ebbers and others at WorldCom knew about the company's fraudulent accounting practices.

The new information includes a June 2001 voicemail message left by WorldCom's chief financial officer, Scott Sullivan, for Mr. Ebbers in which Mr. Sullivan laments the fact that WorldCom's two sets of numbers could create problems for the company because the numbers being prepared to meet Wall Street expectations included a large number of one-time items. Mr. Sullivan refers to "a lot of accounting fluff" in the latest numbers and says, "We are going to dig ourselves into a huge hole because year-to-date, it is disguising what is going on on the recurring side of the business."

Also in the lengthy report, which was prepared by law firm Wilmer Cutler & Pickering, is an April 2000 e-mail suggesting that Mr. Ebbers knew about the phony financial reports, according to people who have read the report. The report, which WorldCom planned to release in the next few weeks, is the result of a nine-month investigation by Wilmer Cutler. The independent investigation was led by William R. McLucas, the former chief of the Securities and Exchange Commission's Enforcement Division.

Federal prosecutors in Manhattan have asked WorldCom not to release the report to creditors until June, according to people with knowledge of the matter. These people say that prosecutors from the U.S. Attorney's office in Manhattan told WorldCom last week that making the report public would harm their investigation.

WorldCom filed for Chapter 11 bankruptcy protection in July after disclosing an accounting fraud that now totals $9 billion, the biggest in U.S. corporate history. Five former executives have been indicted or charged by Manhattan prosecutors in connection with the probe. All have pleaded guilty, except for Mr. Sullivan.

The Manhattan U.S. Attorney's office "hasn't run out all the leads that are in the report," said one person with knowledge of the prosecution. "The report discusses in great detail things that are still being looked at."

Mr. Ebbers's lawyer didn't return calls for comment. In the past, the lawyer, Reid Weingarten, has said his client was unaware of the accounting fraud at WorldCom. Neither Mr. Sullivan nor his lawyer, Irvin Nathan, could be reached for comment.

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