A former WorldCom executive pleaded guilty Monday to securities fraud and conspiracy, saying he acted on orders from his superiors, and agreed to cooperate in the probe of the largest corporate accounting fraud in U.S. history.
Buford Yates said in federal court that he was instructed by supervisors to misreport expenses, allowing WorldCom to overstate earnings by $5 billion between October 2000 and April 2002.
Yates admitted he helped the company hide billions in expenses; WorldCom officials say the total amount of financial misstatements is more than $7 billion.
“I came to believe that the adjustments I was being directed to make in WorldCom’s financial statements had no justification and contravened generally accepted accounting principles,” Yates said in court.
“I concluded that the purpose of these adjustments was to incorrectly inflate WorldCom’s reported earnings in order to meet the expectations of securities’ analysts and mislead the investing public,” said Yates, 46, who had served as WorldCom’s director of general accounting.
Yates lawyer David Schertler said his client had argued against the accounting tricks, but was overruled.
“He strenuously objected to making those adjustments,” said Schertler outside court. “When he raised those objections, he was told they had been approved by the highest levels of WorldCom management.”
The lawyer would not say if that included former CEO Bernard Ebbers, who is under investigation but has not been charged in the case. Ebbers has denied any wrongdoing.
U.S. Magistrate Judge Andrew J. Peck said he would recommend that a federal judge accept the plea.
Sentencing was set for Jan. 9, 2003. Yates faces 10 years in prison and a $1 million fine on the most serious charge of securities fraud.
Prosecutors say Yates carried out orders by chief financial officer Scott Sullivan to hide $3.8 billion in expenses in order to make the telecommunications giant appear profitable.
Since the accounting mess first came to light, WorldCom officials have said roughly $7 billion was misreported, and more recent reports have placed the final figure as high as $9 billion.
Sullivan, who is free on $10 million bond, has maintained his innocence. He is under increasing pressure to cooperate after the actions taken by Yates and Myers, and the expected pleas by Vinson and Normand.
Sullivan’s lawyer, Irv Nathan, has said his client is a victim of a “rush to judgment.”
Yates, of Brandon, Miss., was the second executive at the company to plead guilty in the case.
David Myers, WorldCom’s ex-controller, pleaded guilty in September to securities fraud, saying he was instructed by “senior management” to falsify ledgers.
Two other accounting executives who worked directly under Yates are expected to plead guilty as part of cooperation deals with authorities, according to court papers.
Prosecutors say the executives, Betty Vinson and Troy Normand, also carried out orders from Sullivan and Myers to disguise the $3.8 billion in operating expenses as capital expenses.
“As Sullivan, Myers, Yates, Vinson, and Normand well knew, there was no justification in fact or under generally accepted accounting principles for these entries,” according to the indictment against Yates and Sullivan.
The Securities and Exchange Commission also filed a civil lawsuit against Yates for his role in the scheme.