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Bernard Ebbers, former CEO of WorldCom Inc.— now doing business as MCI— was indicted today for conspiracy and securities fraud for his alleged role in inflating the value of the companys stock in light of its weakening financial condition. The charges came shortly after the companys former chief financial officer, Scott Sullivan, pleaded guilty to related criminal charges.
In a filing with the U.S. Attorneys Office for the Southern District of New York, U.S. Attorney General John Ashcroft announced at a press conference in Manhattan this afternoon that the U.S. government has charged that Ebbers, Sullivan and other WorldCom officials knew about the companys poor finances, but that Ebbers insisted that false results be reported publicly. Ebbers and Sullivan agreed that fraudulent entries would be made in the companys books, including revenue, income, line cost expenses, earnings per share and EBITDA, the government charged.
Ebbers and Sullivan were also charged with making false statements and misleading omissions in conference calls with securities analysts. In February, 2000, for example, Ebbers is reported to have said in an interview that WorldCom was a “sound financial company.”
According to a Department of Justice spokesman, Ebbers is expected to be arraigned tomorrow. The former WorldCom executives could face a maximum sentence of 5 years in prison for the conspiracy charge. The securities fraud counts each carry a maximum sentence of 10 years in prison.
Also today, the U.S. Securities and Exchange Commission filed a civil suit against Sullivan. The lawsuit alleges that Sullivan instructed subordinates to make numerous improper accounting adjustments, worth up to hundreds of millions of dollars, and that he made false and misleading public statements, and signed false SEC filings.
Todays actions are part of a series of enforcement procedures over the last two years that came in the wake of massive fraud disclosures at several large corporations. Emphasizing that top corporate officials will be held accountable for their involvement, SEC Enforcement Division Director Stephen Cutler said, “no matter how high executives climb on the corporate ladder, they will never be above the law.”
Sullivan was permanently suspended from working in public accounting, and he is permanently barred from serving as an officer or director of a public company.
The SEC has taken 5 civil enforcement actions in connection with WorldComs accounting fraud, which led to the largest bankruptcy filing in U.S. history in July, 2002. The company improperly accounting overstated its income by at least $9 billion.
Current WorldCom officials had planned to complete the companys emergence from bankruptcy last week, but asked the court to extend the conclusion until the end of April. Once the bankruptcy emergence is complete, the companys name will change officially to MCI.