Fraud Cases Focus on Top Executives

Trial of WorldCom's Ebbers Starts Tomorrow

The trial of former WorldCom Inc. chairman Bernard J. Ebbers gets underway this week, beginning a new round of courtroom confrontations over events that helped write the emphatic end to last decade's investment boom.

WorldCom and Enron Corp. fell apart and HealthSouth Corp.'s stock plunged after revelations of fraud that had hidden fundamental weaknesses. Pensions, jobs and billions of dollars in shareholder equity were lost in the wreckage.

Now the executives who led those companies are fighting to stay out of prison. Opening statements in the trial of former HealthSouth chairman Richard M. Scrushy begin next week, and Enron's former chairman, Kenneth L. Lay, is expected to face trial later this year, though no date has been set.

Both prosecutors and defense attorneys will enter the courtrooms in those and other corporate trials armed with lessons learned in last year's round of corporate trials, which led to the convictions of Martha Stewart and Frank P. Quattrone -- but also to a hung jury in the trial of former Tyco International Ltd. executives and a handful of acquittals.

The government's lawyers, seeking to hold the men at the top accountable in the cases of Ebbers, Lay and Scrushy, will be aided by the cooperation of lower-level employees who have already pleaded guilty.

The government's aim in seeking convictions of top executives is deterrence, outside analysts said. "The point of these trials is to signal to other CEOs that, while the corporate governance system is broken and the chances of detection are depressingly slim, the consequences of discovery are so dire that it's irrational to engage in fraud," said Jonathan R. Macey, a Yale University law professor.

The three cases will focus on one crucial question: How much did these high-profile executives know about the fraud that brought their companies low? When times were good, these men took credit for their firms' successes, but now Ebbers, Lay and Scrushy are claiming they were out of touch and misled by corrupt underlings who used off-the-books partnerships and accounting tricks to inflate profit.

Defense lawyers, therefore, will try to persuade jurors to distinguish these high-profile businessmen from the bad acts of the companies they led.

"These cases terrify me because of the huge numbers, impossibly complicated accounting issues and all the negative publicity," said Reid H. Weingarten, Ebbers's attorney. "I remain hopeful the jury will do what juries are supposed to do: focus only on the evidence and follow the law. . . . If that happens, Bernie Ebbers will be acquitted."

One of this year's trials is a rerun. Former Tyco chairman L. Dennis Kozlowski and his co-defendant, former Tyco chief financial officer Mark H. Swartz, face grand larceny charges. Prosecutors say they stole $600 million from the company; the defense argues that the two men had the authority to grant themselves bonuses and forgive company loans. An earlier trial ended in a mistrial after a juror's name was publicized.