Two former top WorldCom executives were indicted Wednesday as federal prosecutors built momentum in the criminal probe of the nation’s biggest-ever corporate collapse.
Prosecutors also indicated that three other executives were ready to plead guilty and to cooperate in the probe of the No. 2 long-distance giant.
The indictment is the latest sign prosecutors are intent on restoring investor confidence in the wake of scandals at Enron, Global Crossing and other goliaths.
”With each arrest, indictment and prosecution, we send this clear message: Corrupt corporate executives will be punished,” Attorney General John Ashcroft ( news – web sites) said.
The seven-count grand jury indictment charges WorldCom’s former chief financial officer, Scott Sullivan, 40, and former accounting director, Buford Yates, 46, with conspiring to falsely inflate profits by $5 billion.
The indictment lays bare an alleged conspiracy at WorldCom’s highest echelons to conceal $3.9 billion in expenses from auditors and investors. WorldCom’s collapse cost investors billions and ripped the cover off the 1990s telecom boom.
Prosecutors portray Sullivan as a ringleader who, beginning in July 2000, noticed a slowing of WorldCom’s growth and realized it ”created a substantial risk” the company would fail to meet earnings expectations. That October, Sullivan allegedly first ordered several underlings to ”fraudulently book entries in WorldCom’s general ledger.”
Sullivan’s indictment replaces a criminal complaint against him Aug. 1. It was filed after an apparent breakdown in plea talks. Prosecutors indicated that three of his subordinates — including former controller David Myers, 44, also charged last month — were prepared to plead guilty to as-of-yet-unspecified charges and help investigators. The other two are accounting executives Betty Vinson and Troy Normand.
Their anticipated cooperation raises the pressure on Sullivan to reach a plea deal and to say what he knows about his boss, former CEO Bernie Ebbers.
Prosecutors sometimes use indictments to get wavering suspects to agree to a deal. ”Some defendants don’t believe they’re subject to prosecution unless they’re hit over the head with an indictment,” says Stanford University law professor Robert Weisberg.
Former Enron executive Michael Kopper last week pleaded guilty in a federal probe into the energy giant’s collapse. Adelphia Communications’ founding family members and the former chief of ImClone Systems also have been charged with financial crimes.
Ebbers’ attorney says there is ”no credible evidence” linking his client to the accounting decisions. Sullivan’s attorney pledged a rigorous defense. Yates’ attorney said the indictment was a surprise. Other defense attorneys could not be reached.
WorldCom, after filing for bankruptcy-court protection July 21, disclosed an additional $3.3 billion in accounting abuses.
The charges against Sullivan and Yates carry maximum prison terms of 65 years, but federal guidelines call for 10 years or less.