WorldCom Inc.’s former controller pleaded guilty Thursday to charges that he manipulated accounting to inflate profits and tried to cover it up.
David F. Myers, the first WorldCom executive to fall in the largest accounting scandal in U.S. history, told U.S. District Court Judge Richard C. Casey that he was directed by his superiors to falsify accounting records.
His guilty plea came as part of a deal to help the government identify more senior executives in exchange for leniency.
Myers, 45, showed little emotion as he pleaded guilty to three counts of conspiracy, securities fraud and making false statements to the Securities and Exchange Commission.
In a related move, the SEC filed its own civil complaint against Myers on Thursday. The 25-page complaint closely mirrors the case outlined by prosecutors.
Myers faces a multimillion-dollar fine and up to 20 years in prison, but he likely will get significantly less time because of his cooperation.
Prosecutors accused Myers and others last month of helping WorldCom falsify its books and hide billions in expenses. They said he was ordered to do so by senior executives intent on meeting analysts’ earnings expectations.
In court Thursday, Myers acknowledged the central elements of the government’s case and, without identifying other executives by name, described a wide circle of company employees who were involved in the scheme.
“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,” he told Casey.
“Along with others who worked under my supervision, and at the direction of WorldCom senior management, such accounting adjustments were made for which I knew there was no justification or documentation and were not in accordance with generally accepted accounting principles,” he said.
A WorldCom spokesman declined to comment on Myers’ plea.
Others charged in the case include Scott D. Sullivan, WorldCom’s former chief financial officer and treasurer, and Buford Yates Jr., the former director of general accounting, who also were indicted last month on securities fraud and conspiracy charges.
From October 2000 to June of this year, prosecutors allege, Sullivan directed Myers and others to “book fraudulent entries in WorldCom’s general ledger” to “reduce WorldCom’s reported line costs and thereby increase WorldCom’s publicly reported earnings” all to meet analysts’ expectations and bolster the price of company stock.
Investigators hope that Myers will provide enough direct evidence to prosecute Sullivan, who was described in court papers as the director of efforts to defraud investors.
In June, Myers acknowledged to federal investigators that he had transferred certain costs from expense accounts to capital expenditures. He said he was uncomfortable with the procedure and worried about having to explain it to the SEC, but he continued doing it without supporting documentation, according to court documents.
WorldCom filed for bankruptcy in July, displacing Enron as the largest bankruptcy in U.S. history.
According to prosecutors Thursday, the company’s financial troubles became acute a year earlier, when the access fees that WorldCom paid to third parties became an increasingly large part of total revenue. That in turn led to a decline in earnings.
Starting in October 2000, the government alleged, Sullivan directed Myers to ensure that others in the company account for those charges as capital expenses, effectively spreading them out over a longer period and reducing their impact on the bottom line.
Such an accounting move was “contrary to WorldCom’s usual practices and prevailing accounting industry norms,” prosecutors said in a prepared statement.
Myers did not disclose the practice to Arthur Andersen LLP, which at the time served as the company’s outside auditor. He also failed to disclose it in statements to the SEC, prosecutors said.
Myers is expected to plead guilty to state charges in Mississippi, officials said. In the meantime, he remains free on a $2 million bond.