The former controller of WorldCom Inc. pleaded guilty to securities fraud charges Thursday, saying he was instructed by “senior management” to falsify records in what became the largest corporate accounting scandal in U.S. history.
It was the first admission of guilt in the multibillion dollar scandal.
David Myers, 44, entered the plea in U.S. District Court in Manhattan after telling Judge Richard Casey that he wanted to waive his right to be indicted on the charges.
“I was instructed on a quarterly basis by senior management to ensure that entries were made to falsify WorldCom’s books to reduce WorldCom’s reported actual costs and therefore to increase WorldCom’s reported earnings,” Myers told the judge.
“I combined with others … to assist in the commission of fraud,” said the former executive.
Casey asked the defendant if he had committed the three crimes spelled out in court papers: conspiracy, securities fraud, and making false filings to the Securities and Exchange Commission.
“Yes, sir, I did,” Myers answered.
Outside court, Myers’ lawyer Richard Janis called his client “a reluctant participant” who had “expressed his discomfort and displeasure with the actions being undertaken by WorldCom.”
WorldCom, which owns the nation’s No. 2 long-distance telephone company MCI, became the biggest corporate bankruptcy in U.S. history on July 21.
In June, Myers told WorldCom accountants that the company “could not continue with the cost structure at the current levels and that if the cost structure did not change, the company `might as well shut the doors,'” prosecutors said in court papers.
Myers and Scott Sullivan, the former chief financial officer at WorldCom, were arrested in August. Myers has been free on $2 million bond; Sullivan signed a $10 million bond.
Prosecutors say they directed employees to falsify balance sheets to hide more than $3.8 billion in expenses, causing WorldCom earnings to be overstated by an even greater amount.
The deception enabled WorldCom to report a profit when it was actually losing money, according to regulators.
Myers is now cooperating with the authorities against his former bosses, and has also agreed to plead guilty in Mississippi as early as next week to a single charge stemming from the same corporate swindle, Janis said.
His client was also negotiating with the SEC to resolve civil charges filed Thursday, the lawyer said.
The SEC alleged that Myers “participated in a massive fraud that inflated the company’s earnings at the direction and with the knowledge of WorldCom’s senior management.”
The agency is seeking a permanent injunction against Myers as well as civil money penalties, repayment of allegedly ill-gotten gains and an order barring him from serving as an officer or director of a publicly traded company.
Prosecutors say the massive fraud began when Myers and Sullivan ordered WorldCom accounting executives Buford Yates, Betty Vinson and Troy Normand to record billions in operating expenses as capital expenses.
Myers faces up to 10 years on the most serious charge of filing false reports with the SEC.
Vinson and Normand are also expected to plead guilty as part of cooperation agreements with prosecutors, according to court papers filed earlier. They have yet to appear in court.
Sullivan was indicted in late August along with Yates on securities fraud charges. At their arraignment, prosecutors said they would seek additional charges and may name new suspects in the case.
The cooperation of Myers and others increases the pressure on Sullivan to strike a deal with prosecutors and tell them what, if anything, former WorldCom CEO Bernard Ebbers knew about the alleged accounting crimes.
Sullivan’s lawyer, Irv Nathan, has said his client is “an honorable and honest man” victimized by a rush to judgment.
Ebbers’ lawyer has said he knew nothing about any misreporting.
Since the fraud first came to light, WorldCom officials have revised the amount of accounting improprieties up to $7.1 billion, and recent reports said the final total may reach $9 billion.