The nation’s top law enforcement officials announced the arrest of two former WorldCom Inc. executives on securities fraud charges Thursday.
The officials, led by Attorney General John Ashcroft, also used the occasion to show that the Bush administration was continuing to act tough on corporate corruption.
The two former executives, Scott Sullivan and David Myers, were already in FBI custody in New York Thursday morning.
“Corrupt corporate executives are no better than common thieves when they steal from investors,” Ashcroft said at the Justice Department in Washington.
“Information of integrity” is the “invisible guiding hand” of the U.S. economy, Ashcroft said. “But when financial transactions are fraudulent and balance sheets are falsified, the invisible hand that guides our economy turns into a greased palm.”
Sullivan, former WorldCom chief financial officer, and Myers, its former controller, were fired in late June, shortly before the long-distance carrier announced it had improperly recorded $3.8 billion in expenses as capital assets.
The improper records allegedly allowed WorldCom to show a false profit for 2001.
WorldCom declared the largest bankruptcy in U.S. history last month.
Ashcroft was joined for Thursday’s announcement by Deputy Attorney General Larry Thompson, who heads President George W. Bush’s Corporate Fraud Task Force, and by FBI Director Robert Mueller.
Sullivan and Myers “systematically flouted the rules of accounting and lied outright to investors,” Thompson said.
Mueller said the current crisis in the business community wasn’t new. “In the past, we have seen similar schemes in the (savings and loan) and the health care industries.”
But even though some corporate executives believe that cooking the books is harmless, “make-believe assets and massive fraud have criminal justice consequences,” Mueller said.
Ashcroft “recused,” or took himself out, of an earlier investigation into an alleged scheme to hide debts by the Enron Corp., but did not recuse himself from the WorldCom investigation.
A former senator from Missouri, Ashcroft had received campaign contributions from individuals or entities associated with both corporations.
But Ashcroft said Thursday that the “totality of circumstances” in each case caused him to recuse himself from the Enron investigation, but not to recuse himself from the WorldCom one.
In other words, Enron-associated contributions had a greater role in his campaigns, while WorldCom-associated contributions had a minor one.
The federal complaint filed in Manhattan Thursday alleges that Sullivan and Myers engaged in a conspiracy to commit securities fraud, making false statements to the Securities and Exchange Commission and to auditors.
They are also accused of keeping false books and records.
The criminal complaint says between April 2001 and April of this year, at Sullivan’s direction, Myers caused $3.8 billion in expenses to be filed improperly in the company’s property, plant and equipment accounts.
The complaint says no one at WorldCom disclosed the improper accounting to an auditing team from Arthur Andersen, or to other consultants and auditors.
The country’s No. 2 long-distance carrier, the Clinton, Miss.-based WorldCom “provides a broad range of communications services to United States and foreign-based businesses and consumers,” according to the government’s filing. “WorldCom provides, among other things, data transmission services, Internet-related services, commercial voice services, international communication services, long distance service, and other telecommunication services.”
Earlier this week, Bush signed into law legislation that increases the penalties for securities fraud and attempts to force auditors to be more independent of the companies they audit.
Thursday, Ashcroft issued a directive to the 94 U.S. attorneys’ offices and the 56 FBI field offices ordering immediate implementation of the law, called the Sarbanes-Oxley Corporate Fraud and Accountability Act of 2002.
Last week, the Justice Department arrested and charged five former executives of Adelphia Communications in the beginning of what is expected to be a major crackdown.
Adelphia is the country’s fifth-largest cable operator, but filed for bankruptcy last month. The five former executives were charged with securities and wire fraud.
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