Prosecutors can present evidence at trial suggesting former WorldCom Inc. Chief Financial Officer Scott D. Sullivan might have inflated the company’s revenue to protect the value of his stock options, a federal judge ruled yesterday.
“It was a strong motive to hide the fact that the company wasn’t doing well,” Assistant U.S. Attorney David Anders said. “The fact that he had millions of dollars of stock options goes right to the heart of this case.”
The ruling by U.S. District Judge Barbara Jones allows the government to show jurors that Sullivan had a personal financial interest in boosting the value of WorldCom shares. Sullivan is accused of orchestrating an $11 billion fraud that drove WorldCom, the second-largest U.S. long-distance phone company, into bankruptcy proceedings. He has denied wrongdoing.
Sullivan had options on 4.15 million shares at the end of 2001, according to company filings. He earned $700,000 in annual salary and received 600,000 stock options that year that could be exercised when a share was worth $44.50, according to the proxy statement.
Jones withheld judgment on whether jurors can hear that Sullivan also was paid a $10 million “retention bonus.” Lawyers for both sides agreed that evidence showing Sullivan’s salary and stock holdings may be admitted.
Jones barred prosecutors from mentioning Sullivan’s expensive home in Boca Raton, Fla., to the jury because it would be an “unfairly prejudicial influence on the jury.”
Jones said jury selection will begin between March 29 and March 31.
Roy Black, an attorney for Sullivan, asked the judge for permission to cross-examine government witnesses from WorldCom’s current accounting firm, KPMG LLP, using portions of a report by WorldCom bankruptcy examiner Richard Thornburgh.
The report, released Monday, said WorldCom may have grounds to sue KPMG and Citigroup Inc. for hundreds of millions of dollars over advice they gave the company before it filed for the biggest U.S. bankruptcy.
“If there is actually money that will flow to KPMG, that to me might be an area for cross-examination,” Jones said. She declined to rule on Black’s motion.
“There is absolutely no question regarding the integrity of our partners,” KPMG spokesman Greg Dvorken said. “If called, they will assuredly testify truthfully and completely as to Mr. Sullivan’s conduct.” KPMG replaced the Arthur Andersen firm in 2002 as WorldCom’s auditor.
Sullivan has pleaded innocent to charges including conspiracy, securities fraud and bank fraud.