The federal court overseeing a Securities and Exchange Commission fraud suit against WorldCom has asked a member of the firm’s board of directors to pay $1.4 million and step down from the board.
Stiles A. Kellett Jr., an Atlanta millionaire who joined WorldCom’s board in 1989, has drawn criticism from U.S. District Judge Jed S. Rakoff for a $1-per-year lease he had on a WorldCom jet. WorldCom attorneys have said Kellett negotiated that lease with former president and chief executive officer Bernie Ebbers.
As the head of WorldCom’s compensation committee, Kellett was responsible for determining Ebbers’ annual salary, and he also approved Ebbers’ $408 million in loans from the company in addition to a $1.5 million-per-year severance package.
Ethics experts have said Kellett had a clear conflict of interests and failed in his primary responsibility as a board member to watch out for shareholders’ interests.
During WorldCom’s board meeting Tuesday, Richard Breeden, a former chairman of the Securities and Exchange Commission whom Rakoff appointed as a federal monitor to investigate WorldCom, recommended Kellett pay WorldCom the amount it would have cost to lease the plane from a private firm and called for him to step down, The Washington Post reported Friday.
“During the terms of the (airplane) lease, the committee approved actual payments of more than $415 million,” Breeden wrote in his memo to the board, according to the Post. “Since there is no plausible explanation for the gift to Kellett, it is reasonable to surmise that Ebbers gave the plane to Kellett either as a reward for his compensation, including the loans, or as a secret inducement for further compensation.”
Breeden also reportedly recommended the cancellation of Ebbers severance package, which, in addition to the $1.5 million-per-year payments, gives him five years to pay back his loans.
Reports have said Breeden urged the cancellation because of Ebbers’ close relationship with Kellett and the conflicts of interest that relationship represented.
WorldCom’s board did not act on either motion Tuesday. Reports have said Kellett asked for a chance to defend his lease at an Oct. 3 board meeting.
Kellett’s attorney, Stuart Piersen has defended both his client and the lease, saying Kellett paid for staff and maintenance on the plane in addition to the $1 lease. Pierson has also said even if Kellett headed a committee, WorldCom’s entire board approved Ebbers’ salary and severance package.
“Breeden’s facts are wrong, his conclusions are wrong, his recommendations are wrong,” Pierson told the Post.