Federal prosecutors said today that they expect to file more charges and may target new defendants in their investigation into alleged accounting fraud at WorldCom Inc.
Prosecutors did not disclose the names of possible new targets, but legal experts and lawyers close to the case said they expect the government to make plea deals with lower-level employees to bring cases against top executives, including former chief executive Bernard J. Ebbers.
“The government is continuing its investigation and we do plan to supersede at some point, to add charges to the same scheme and to potentially add defendants,” Assistant U.S. Attorney David D. Anders told U.S. District Judge Barbara S. Jones.
Anders spoke at the arraignment of former WorldCom chief financial officer Scott D. Sullivan and accounting executive Buford Yates Jr.
Sullivan and Yates were indicted by a grand jury last week on securities-fraud charges. Both pleaded not guilty at the brief hearing today. Sullivan remains free on a $10 million bond; Yates was released on a $500,000 bond. Yates’s attorney, David Schertler, told the judge that he would file a motion within 30 days asking for a change of venue to U.S. District Court in Mississippi, where WorldCom is based and where Yates lives.
Anders told the judge that he was preparing to turn over to defense lawyers 100 to 150 boxes of evidence seized in the case.
WorldCom filed the largest bankruptcy case in U.S history in July after disclosing that it falsely booked $3.9 billion in expenses over the past five quarters. Later, the company reported that it had mishandled $3.8 billion more, in the form of reserve accounts designed to cushion it from losses.
Through the U.S. attorney’s office in Manhattan, the Justice Department is trying to move swiftly in the WorldCom case. Legal experts said the government’s efforts are helped by the relative simplicity of WorldCom’s alleged fraud, compared with the byzantine financing arrangements in the collapse of energy trader Enron Corp. In the WorldCom case, the company said it fired Sullivan after he tried to defend the scheme.
WorldCom is the parent company of Arlington-based long-distance provider MCI and UUNet, the Ashburn Internet service provider that carries much of the world’s Internet traffic.
Prosecutors allege that Sullivan and Yates directed accounting department officials Betty L. Vinson and Troy M. Normand to commit fraud. Vinson and Normand were fired last week, according to WorldCom sources. The two, and former WorldCom controller David F. Myers, were named as unindicted co-conspirators in the case.
Myers surrendered to the FBI with Sullivan last month but was not indicted last week. Legal experts said that indicates prosecutors are satisfied with the information he is providing them about the case.
“Sullivan, Yates, and their co-conspirators were able to assure that WorldCom’s reported earnings exceeded its actual earnings for the period from October 2000 through April 2002 by approximately $5 billion,” the government’s indictment said. “As Sullivan, Myers, Yates, Vinson, and Normand well knew, there was no justification in fact or under generally accepted accounting principles for these entries.”
Court papers filed last week suggested that Myers, Vinson and Normand may soon plead guilty as part of a deal to cooperate with the government. Such a deal could increase pressure on Sullivan to cooperate with prosecutors and describe what role, if any, Ebbers played in the alleged accounting fraud. Ebbers’s attorney, Reid Weingarten, declined to comment today. He has said previously that Ebbers was unaware of any accounting irregularities.
Yates is discussing a possible guilty plea in return for his cooperation, but those talks remain in a preliminary stage, according to a source familiar with the discussions. A lawyer representing Vinson and Normand did not return a call for comment. Attorneys for Myers and Sullivan did not return calls. Anders declined to comment further on the government’s plans.
Jones did not set a trial date for Yates and Sullivan, noting the government’s plans to seek further indictments. She set Dec. 9 as a tentative date for the next preliminary hearing in the case.
Separately, WorldCom is seeking U.S. Bankruptcy Court approval to pay severance benefits to employees laid off before the bankruptcy filing. The company originally sought to pay up to $4,650 per dismissed employee. The court has already authorized the company to pay a total of $22 million. But in a filing late Tuesday, the company said it needed about $36 million to meet its obligations to 4,143 dismissed employees.
An official at the AFL-CIO, which has been advising laid-off WorldCom workers, said it was reviewing the filing and discussing it with workers and WorldCom officials. The AFL-CIO has been highly critical of the millions paid to WorldCom executives before the bankruptcy filing.
In its filing Tuesday, WorldCom said it had let go 19 executives with enhanced severance packages. Under the enhanced agreements, WorldCom would have paid the executives about $900,000. Before the Chapter 11 filing, the company paid them about $500,000 of that amount. WorldCom is now seeking to void the agreements. The company identified the recipients only as 19 vice presidents and senior vice presidents.