David Myers, the former controller of WorldCom, is expected to plead guilty today to up to three counts of fraud in connection with WorldCom’s multibillion-dollar accounting scandal, say people familiar with the matter.
The charges carry a maximum sentence of about 20 years, and include securities fraud and conspiracy to commit securities fraud. The plea is expected to be entered in federal court in Manhattan.
Myers, who has been cooperating with the Justice Department’s investigation into WorldCom, is expected to help prosecutors build their case against the telecom’s former chief financial officer, Scott Sullivan.
Sullivan has pleaded not guilty to fraud and conspiracy charges. Prosecutors claim he hid expenses to keep earnings in line with Wall Street expectations. Former WorldCom finance employee Buford Yates has pleaded not guilty to similar charges.
Legal experts say Sullivan, in turn, could help prosecutors go after former WorldCom CEO Bernie Ebbers, who has denied wrongdoing.
More charges and defendants could be added to the WorldCom accounting probe, prosecutors have said.
Myers’ plea agreement has been expected, and it represents a big step forward for prosecutors.
Myers ”is critical,” says securities litigator Thomas Ajamie. ”He’s giving them the WorldCom playbook of who did what and who knew what.”
Other former WorldCom accounting employees, Troy Normand and Betty Vinson, are expected, like Myers, to plead guilty to lesser charges in exchange for their help. Their attorneys couldn’t be reached Wednesday, nor could Myers’.
WorldCom, the USA’s No. 2 long-distance phone company, sought bankruptcy-court protection in July. It says an internal probe uncovered the improper accounting, and that Sullivan was the mastermind.
In addition to the criminal probe, WorldCom faces fraud charges from the Securities and Exchange Commission .
The alleged fraud, which started in late 2000 as the telecom industry started to slow, boosted WorldCom’s net income by about $5 billion from October 2000 through April 2002.
Myers, in documents released by investigators and WorldCom, indicated that once the alleged fraud was started it was difficult to stop. He says he also tried to dissuade one other employee from raising accounting concerns to WorldCom’s then auditor, Arthur Andersen. Myers reported directly to Sullivan.
Sullivan, in a white paper to the WordCom board before the accounting problems were made public, defended the accounting. The bulk of the accounting irregularities involved treating some operating expenses as capital expenses. Doing so boosted profits on WorldCom’s books because capital expenses can be spread out over time.
Sullivan’s attorney couldn’t be reached. WorldCom declined comment.