WorldCom’s former controller, David Myers, pleaded guilty to charges he participated in a multibillion-dollar accounting fraud that drove the company into the biggest bankruptcy in U.S. history.
Myers, 44, is accused of plotting with WorldCom’s former chief financial officer, Scott Sullivan, to hide more than $7 billion in expenses by manipulating the books of the second-largest long-distance phone company. Myers entered guilty pleas to charges of fraud, conspiracy and filing a false document with the U.S. Securities and Exchange Commission.
Prosecutors will use Myers to help build a case against Sullivan and other former WorldCom officials, said lawyers familiar with the case. The ultimate target, attorneys following the case say, is the company’s former chairman, Bernard Ebbers.
Myers told U.S. District Judge Richard Casey, “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 actual reported costs and therefore to increase WorldCom’s reported earnings.”
When Casey asked him if he knew what he did was wrong, Myers replied, “Yes sir, I did.”
Standing alone in a dark-blue, pinstriped suit, Myers told the judge that he and his subordinates at WorldCom made ”accounting adjustments” for which he knew “there was no justification or documents.”
Myers could face up to five years in prison on both the conspiracy and securities fraud counts and 10 years for lying to the SEC. He can also be fined. Considering the dimensions of the fraud, Myers could end up serving five or six years behind bars, said Robert Mintz, a former federal organized crime prosecutor in New Jersey.
The SEC on Thursday filed a civil enforcement action against Myers, its second in the WorldCom case.
In the second half of 2000, Myers and others improperly decreased certain reserves to reduce ”line costs,” which are expenses for accessing the networks of other telecommunications companies. As a result, they caused Clinton, Miss.-based WorldCom to overstate pretax earnings by at least $1.2 billion, the SEC said.
Then from the first quarter of 2001 through the first quarter of 2002, Myers and others improperly capitalized certain line costs, the SEC charged. That resulted in an overstatement of WorldCom’s pretax earnings by about $3.8 billion, the SEC said.
The SEC is calling for Myers to return illegal profits and pay a civil fine. The commission also wants a court order barring him from serving as an officer or director of a public company ever again.
Myers was arrested with Sullivan on Aug. 1. Sullivan, 40, who has a home in Boca Raton, was indicted Aug. 28 on charges he orchestrated the fraud.
Myers is accused in a criminal complaint of ordering Myers to direct other employees to make false accounting entries. Sullivan pleaded not guilty Sept. 4.
Myers’ lawyer, N. Richard Janis, said after the plea that his client has cooperated with prosecutors since ”well before” his arrest and will continue to do so.
Janis said Myers was a ”reluctant participant” in the fraud who ”acted at the direction of others” and had “expressed his discomfort.”
Still, Janis said, Myers “recognizes that as a corporate officer, those facts do not relieve him of his own responsibility.”
Janis said Myers plans to plead guilty in Mississippi state court as early as next week to one count of conspiracy.