Former WorldCom executive Buford Yates became the second company official in two weeks to plead guilty in the bankrupt company’s multibillion-dollar accounting scandal, insisting that he also was following orders from top-level management.
Yates, the ex-director of general accounting, pleaded guilty Monday to conspiracy and securities fraud as part of a deal with the Manhattan U.S. attorney’s office to cooperate in their investigation of the largest corporate accounting fraud in U.S. history.
Yates said in U.S. District Court in Manhattan that he was instructed by supervisors to misreport expenses, allowing WorldCom to overstate earnings by $5 billion between October 2000 and April 2002.
Echoing the earlier guilty plea of former WorldCom controller David Myers, Yates’ lawyer David Schertler said his client committed the crimes on orders from the “highest levels” within the company.
Myers, in his plea two weeks ago, said he acted on instructions from “senior management.”
Neither defendant would say if that included former chief executive Bernard Ebbers, who has not been charged but is under investigation. Ebbers has denied any knowledge of the fraud.
Yates, 46, admitted he helped the company hide billions of dollars in expenses; WorldCom officials have said the financial misstatements total more than $7 billion.
“I came to believe that the adjustments I was being directed to make in WorldCom’s financial statements had no justification and contravened generally accepted accounting principles,” Yates said in court. “I concluded that the purpose of these adjustments was to incorrectly inflate WorldCom’s reported earnings in order to meet the expectations of securities analysts and mislead the investing public.”
Yates’ lawyer said his client had argued against the accounting tricks but was overruled by superiors.
“He strenuously objected to making those adjustments,” Schertler said outside court. “When he raised those objections, he was told they had been approved by the highest levels of WorldCom management.”
After Yates described his role in the massive fraud, U.S. Magistrate Judge Andrew J. Peck said he would recommend to U.S. District Judge Barbara S. Jones that the plea be accepted by the court.
Sentencing was set for Jan. 9. Yates, of Brandon, Miss., faces 10 years in prison and a $1 million fine on the most serious charge of securities fraud.
The Securities and Exchange Commission also filed a civil lawsuit against Yates for his role in the scheme.
Prosecutors say Yates carried out orders by chief financial officer Scott Sullivan to hide $3.8 billion in expenses to make the telecommunications giant appear profitable.
Myers pleaded guilty last month to securities fraud and is cooperating with prosecutors.
Two other accounting executives who worked directly under Yates are expected to plead guilty as part of cooperation deals with authorities, according to court papers.
Prosecutors say the executives, Betty Vinson and Troy Normand, carried out orders from Sullivan and Myers to disguise the $3.8 billion in operating expenses as capital expenses.
“As Sullivan, Myers, Yates, Vinson and Normand well knew, there was no justification in fact or under generally accepted accounting principles for these entries,” according to the indictment against Yates and Sullivan.
Since the accounting mess first came to light, WorldCom officials have said roughly $7 billion was misreported. More recent reports have placed the figure as high as $9 billion.
Sullivan, who is free on $10 million bond, has maintained his innocence. He is under increasing pressure to cooperate after Yates and Myers’ actions and the expected pleas by Vinson and Normand.
Sullivan’s lawyer, Irv Nathan, has said his client is a victim of a “rush to judgment.”