The Oklahoma attorney general Wednesday filed the first criminal charges against former WorldCom Inc. chief Bernard Ebbers, part of a wider complaint that also named the telecommunications company now known as MCI and other one-time top executives.
The complaint accuses Ebbers, the other executives and the company of violating state securities laws by giving false information to investors in 2000. WorldCom collapsed into the nation’s largest bankruptcy last year amid an accounting scandal that has grown to $11 billion.
“It is rare that we name a company in a criminal complaint, but in this case it is justified,” Oklahoma Attorney General Drew Edmondson said, adding that the WorldCom debacle cost the state pension fund $64 million.
“The decision to commit this fraud was a company decision. This is not some rogue employee trying to line his own pockets. This was a conscious decision made for the benefit of the company.”
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 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, Edmondson said. The company could be fined.
Ebbers’ attorney Reid Weingarten said he expects Ebbers to be exonerated.
“The entire WorldCom matter has been investigated exhaustively for over a year by the FBI and the U.S. Department of Justice and no charges have been brought against Bernard Ebbers,” Weingarten said. “This is not because of any lack of prosecutorial zeal; rather, it is because of a total lack of any evidence that Mr. Ebbers committed crimes.
“It is not apparent from the charging document, which contain no specific allegations of wrongdoing by Bernard Ebbers, what the local Oklahoma authorities think they have uncovered that the federal authorities have overlooked.”
The charges 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.
A report Tuesday from court-appointed monitor Richard Breeden, a former SEC chairman, established a framework for MCI’s future governance and said the company is expected to emerge from bankruptcy shortly. In addition to taking the name of the MCI long-distance division, the company has moved its headquarters to Ashburn, Va., and hired new leadership.
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 and has continued to win contracts.
“I don’t think this company has been punished,” he said. “I think it’s been rewarded for its bad acts.”
The complaint alleges WorldCom executives schemed to defraud 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.
“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 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 May, Edmondson, attorneys general from West Virginia and Massachusetts and the Alabama Securities Commission filed objections to court approval of MCI’s disclosure statement with its Chapter 11 reorganization plan.
Ebbers’ rise began in 1983, when he and three other men met in a coffee shop in Hattiesburg, Miss., to work out details of a company that would become Long Distance Discount Service, or LDDS. LDDS became a nationwide provider, and then an international carrier in 1995 with the acquisition of IDB WorldCom.
Ebbers was one of the hardest-charging figures in the 1990s telecom boom, growing WorldCom with a series of acquisitions, including MCI, the nation’s No. 2 long-distance provider, in 1997.
But reports commissioned by courts and the company after Ebbers resigned in April 2002 have said he had made several 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.
Since resigning, Ebbers has largely stayed out of sight. When called before Congress last year during hearings over the spate of business scandals, Ebbers invoked his Fifth Amendment rights and refused to testify.