Prosecutors secured their first guilty plea in the largest accounting scandal in U.S. history yesterday as WorldCom Inc.’s former controller admitted he helped falsify the company’s books.
David Myers, who resigned as controller and vice president of the telecommunications giant in June after WorldCom uncovered a multibillion-dollar accounting fraud through an internal audit, pled guilty to three felony counts in federal court in Manhattan. Myers now faces a new lawsuit filed yesterday by the Securities and Exchange Commission, and he is expected to plead guilty to one count of violating Mississippi law next week.
“I was instructed on a quarterly basis by senior management … to falsify WorldCom’s books,” Myers, 45, said in a plea hearing before U.S. District Judge Richard C. Casey.
Myers said he “knew there was no justification” for the maneuvers made from Oct. 2000 to June 2002 that overstated WorldCom’s profits by $5 billion.
Myers also faces a civil case from the SEC accusing him of securities fraud dating back to 1999. Myers’ attorney N. Richard Janis said he and his client have “actively been in discussions” with the SEC to resolve that case.
Attorneys following the case noted that Myers’ guilty plea will be crucial in the government’s pending case against his ex-boss, WorldCom former chief financial officer Scott Sullivan. On Aug. 28, Sullivan and another former WorldCom employee, Buford Yates, were indicted on conspiracy and securities fraud charges. Both have pleaded innocent.
The Justice Department also has named former WorldCom accounting executives Betty Vinson and Troy Normand unindicted co-conspirators, suggesting they, too, could cooperate in the case against others.
The government’s filings accuse Sullivan of directing Myers and others to repeatedly record so-called line costs as capital rather than expenses, which made profits appear greater than they actually were for the second-largest telecommunications company.
Myers faces up to 20 years in jail for his involvement in a conspiracy to commit securities fraud, one count of securities fraud and one count of filing false statements with the SEC. However, if his cooperation and testimony proves useful against his former bosses, prosecutors may recommend a sentence of 1 to 2 years, said John Coffee, a law professor at Columbia University.
“What you’ll actually get depends on how much money was involved in the loss,” Coffee said. Sentencing is scheduled for Dec. 26, but prosecutors could ask for a delay if there is a trial pending against another WorldCom official, Coffee said.
Coffee expects that Sullivan’s testimony will be necessary if prosecutors want to charge former chief executive Bernard Ebbers, who has not been arrested or charged. “Only he [Sullivan] could testify that ‘I cleared it all with Ebbers,'” Coffee said.