NEW YORK, Jan. 25 -- Former WorldCom Inc. chief executive Bernard J. Ebbers personally directed his underlings to falsify the telecommunication giant's accounting for nearly two years to protect his personal fortune and "keep the banks off his back," a government prosecutor said Tuesday during opening statements at Ebbers's criminal trial in Manhattan.
Assistant U.S. Attorney David B. Anders told the jury that Ebbers, 63, was faced with a choice in October 2000, when the firm's then-chief financial officer, Scott D. Sullivan, told him the company could not meet ambitious earnings targets it had told Wall Street to expect.
Bernard J. Ebbers, left, was misled by WorldCom's chief financial officer, Scott D. Sullivan, said lawyer Reid H. Weingarten, right.
(Gregory Bull -- AP)
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"He could tell the public the truth and deal with the consequences or he could lie," Anders said. "Bernard Ebbers lied not once, not twice, but again and again" because he had taken out more than $400 million in bank loans based on his WorldCom stock and could not afford to let the share price fall.
But Ebbers's attorney, Reid H. Weingarten of Washington, countered that Ebbers had no idea that Sullivan was illegally tinkering with WorldCom's accounting. An entrepreneur with little accounting experience, Ebbers trusted and was misled by Sullivan, who will be the government's chief witness, Weingarten said. The defense lawyer noted that Ebbers was still buying WorldCom stock in the weeks before the company announced in June 2002 that it had uncovered a massive accounting fraud.
"If you're in a criminal conspiracy and WorldCom is a house of cards and they are putting up [false] numbers, you sell stock. He did the opposite," Weingarten said. "This is a man who is fundamentally decent at his core who never did and never would defraud anyone."
Shareholders, bondholders and WorldCom employees lost billions of dollars when WorldCom, which now operates as Ashburn-based MCI Inc., filed for bankruptcy protection in 2002 and revealed $11 billion in false accounting. The firm's spectacular implosion helped spark new corporate responsibility laws. Five former WorldCom executives, including Sullivan, have pleaded guilty and are cooperating with prosecutors.
Ebbers is charged with conspiracy, securities fraud and seven counts of filing false documents with the Securities and Exchange Commission. Prosecutors allege he directed WorldCom financial executives to falsely classify operating expenses as capital costs and used misleading one-time revenue sources to pump up WorldCom's bottom line from 2000 to 2002. "When people invest money and become shareholders, they enter into a relationship of trust. . . . They purchase the right to be told the truth," Anders said. "Bernard Ebbers violated that trust."
Both sides signaled in their opening remarks how crucial a role Sullivan will play at the trial. The highest-ranking WorldCom official to plead guilty, he had by far the most direct contact with Ebbers.
Anders said the former finance chief would testify that he personally told Ebbers that the firm could not meet the earnings targets without tinkering improperly with the way WorldCom accounted for fees it paid other telecom companies for using their equipment. Those "line costs" were a major operating expense.
"Sullivan told Ebbers face to face and point blank that this wasn't right," Anders said. "Ebbers approved by saying only, 'We have to hit the number.' When he said 'hit the number,' it was a command to commit fraud."
But Weingarten predicted that Sullivan would exaggerate the size of the accounting fraud and falsely implicate Ebbers in an effort to curry favor with prosecutors and reduce his own prison sentence, which could be as high as 25 years. "Scott Sullivan is such a practiced and accomplished liar and he will be so motivated to lie that he will not be deemed to be credible," Weingarten said.
The defense also began moving to exploit the fact that the government has few -- if any -- incriminating documents written by Ebbers, who famously refused to use e-mail. "There are a zillion documents in this case and there ain't one smoking gun," said Weingarten, who implored the jury not to blame Ebbers for his underlings' misdeeds. "He cannot and should not be held criminally responsible for a fraud he did not know about and did not participate in."
The opening statements came after a brisk jury selection that lasted only a day and half, far less time than other high-profile corporate fraud trials. U.S. District Judge Barbara S. Jones used a brief written questionnaire to weed out potential panel members with obvious problems -- those who could not sit for the expected six to eight weeks, WorldCom investors and those who knew about the case and thought they could not be fair. The remaining pool, drawn from Manhattan, the Bronx and the northern suburbs of New York City, included large numbers of blue-collar workers, government employees and retirees.
The final pool of 16, which includes 12 jurors and four alternates, is made up of 10 women and 6 men. There are two teachers, three current and former transit workers, three bank employees and people with a variety of other occupations, including nurse, administrative assistant and housewife.
