Former WorldCom chief financial officer Scott Sullivan was indicted on criminal fraud charges, amid signs that other accused company executives would enter a plea bargain with prosecutors.
Unsealed in a federal court in New York, the indictment also named WorldCom’s former director of general accounting Buford Yates in connection with hiding billions of dollars of company expenses.
Sullivan’s indictment followed the apparent breakdown of negotiations on a plea bargain in which he would have admitted to charges carrying a jail sentence of 10 years or more.
There were, however, indications that WorldCom’s former controller David Myers might be on the verge of striking a deal.
Myers, 44, was arrested and charged with Sullivan on an earlier criminal complaint, but he was not indicted on Wednesday and prosecutors filed documents indicating he and two other WorldCom accounting department employees were cooperating with investigators.
Prosecutors are believed to be trying to build a case against Bernie Ebbers, WorldCom’s former CEO, who resigned in April.
“My suspicion is that Myers has agreed to plead guilty,” said Walter Brown, a former assistant US attorney, suggesting that an agreement could mean leniency in sentencing.
Sullivan and Myers were sacked in late June after WorldCom revealed that it had an unprecedented 3.8 billion dollars of accounting discrepancies that wiped out its 2001 profits. That figure was later revised to show 7.2 billion dollars in improperly booked expenses.
The company has filed for Chapter 11 protection under US bankruptcy law.
Coming six months after Enron’s collapse, the WorldCom scandal helped sink investor confidence in the United States and push stocks to five-year lows.
Wednesday’s indictment charged Sullivan and Yates with securities fraud, conspiracy to commit securities fraud and five counts of false filings with the Securities Exchange Commission.
The charges carry a possible sentence of 25 years imprisonment.
In Washington, US Attorney General John Ashcroft said the indictment demonstrated the government’s commitment to cracking down on corporate law-breakers and protecting the savings and pensions of ordinary Americans.
“With each arrest, indictment and prosecution, we send this clear message: corrupt corporate executives will be punished,” Ashcroft said.
“The Department of Justice is committed to ensuring that corporate executives never profit by victimizing their own employees and investors.”
Sullivan and Myers allegedly devised a scheme to cover up WorldCom’s increasing expenses, by causing billions of dollars of operating costs to be hidden in the company’s capital expense accounts.
This transfer allowed WorldCom to defer recognising a substantial portion of its current operating expenses and thereby report higher earnings.