Two former WorldCom executives, Scott Sullivan and Buford Yates, were indicted on Wednesday on charges of securities fraud and making false statements to authorities stemming from the company’s $7.2bn accounting fraud.
The grand jury indictment follows the arrest earlier this month of Mr Sullivan, WorldCom’s former chief financial officer, and David Myers, its former controller, after the telecommunications company filed for the largest US bankruptcy ever. The charges could carry prison sentences of up to 65 years.
The indictment did not include Mr Myers, raising speculation that he was in talks with the government on a plea agreement that would secure his co-operation in the case. Two other WorldCom executives, Betty Vinson and Troy Normand, were also listed in the indictment although they have not been charged, and may be co-operating.
Prosecutors are still attempting to build a case against Bernie Ebbers, former WorldCom chief executive, who has insisted he is innocent.
The indictment adds more context to the criminal complaint the US attorney’s office filed against Mr Sullivan and Mr Myers on August 1, yet leaves unexplained roughly $2bn of the false accounting that has been uncovered by WorldCom’s internal investigation.
The indictment portrays Mr Sullivan as the architect of a plan to reclassify WorldCom expenses, related to third-party telephone lines, in order to boost its net income. The scheme was hatched to conceal rising expenses at WorldCom which threatened to undermine its share price.
In October 2000, Mr Sullivan allegedly directed Mr Myers, Mr Yates, WorldCom’s director of general accounting, and his assistants, Ms Vinson and Mr Normand, to dip into the company’s balance-sheet reserves at the end of each quarter to offset line costs.
In April 2001, Mr Sullivan, Mr Myers and Mr Yates agreed it was no longer possible to use reserves to disguise the bulging costs. They then developed a new scheme to reclassify line costs from WorldCom’s income statement as capital expenditures on its balance sheet.
Between October 2000 and April 2002, these schemes increased WorldCom’s reported earnings from its actual earnings by about $5bn, the grand jury said.
Separate attorneys for Mr Sullivan, Mr Myers and Mr Yates did not return telephone calls on Wednesday.
Jim Comey, US attorney for the southern district of New York, said the indictment reflected his commitment to prosecute “corporate officials at all levels” who defraud investors.
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