Former WorldCom Inc. chief executive Bernard J. Ebbers was found guilty on all counts against him -- conspiracy, securities fraud and making false filings with regulators -- for his role in a massive accounting fraud that led to the downfall of the nation's second largest telecommunications firm, costing millions of investors billions of dollars.
Read the story:Bernard Ebbers Guilty on All Counts (Post, March 15)
Roma Theus, vice chairman of the Corporate Integrity and White Collar Crime Committee at the Defense Research Institute, will be online Tuesday, March 15, at 3 p.m. ET to discuss the case and the verdict.
A transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Does this verdict constitute a victory for the working man/woman and the trade union movement?
I'm a journalist and may wish to 'quote' your answer.
Roma Theus: The jury's verdict is a finding that the disclosure contemplated by the American securities laws was not honored. It is not accurate to frame the verdict as a victory for the working man or woman against management or big business.
How will Mr. Ebbers' conviction of fraud affect the trials of former HealthSouth chief Richard Scrushy and former Enron chairman Ken Lay?
Roma Theus: Mr. Ebbers' conviction should be viewed in the context of the convictions of John Rigas in the Adelphia matter, Martha Stewart and Sam Waksal in the IM Clone matter and Frank Quattrone in his matter. The United States Government is making a concerted effort to optimize accuracy in the securities markets and to deter of fraudulent misrepresentation. In light of these convictions and the spectacular financial fallout from the failures of Enron and Worldcom, it is plain that there is public hostility to corporate fraud and mismanagement. Thus, criminal prosecution for this type of behavior is fraught with peril for any CEO or CFO or Director of a publicly traded company.
New Rochelle, N.Y.:
Is this a bad sign for Ken Lay, who apparently plans a similar defense?
Roma Theus: Each defendant must evaluate his or her case on the facts applicable to it. Mr. Lay may have better defenses and facts than Mr. Ebbers had. However, from the perspective of a broad overview, it appears that the public, as well as the United States Government, is hostile to corporate fraud and mismanagement; and that they will severely punish this type of misconduct.
So I guess Sgt. Shultz defense won't cut it for CEOs, right?
Roma Theus: Correct. The "Corporal Schultz" defense is unacceptable with respect to a CEO who has command responsibility for the operation of a multi-billion dollar public company. Such a defense is especially vulnerable when the CFO testifies that the CEO knew what was happening, and several other executives of the company in question plead guilty to criminal fraud.
What precedents do you think were set for the next high-profile corporate trials?
Roma Theus: No precedents, per se, were established. But, the verdict will make the senior management of any publicly traded company acutely aware of: (A) their vulnerability to criminal prosecution if they engage in fraud and mismanagement; and (B) the crushing consequences criminal prosecution may bring.
I always wondered why WorldCom stock stabilized while everyone else collapsed down to pennies. Are there any similarities (other than governmental deregulation of the phone and energy markets) between the fraudulent behavior at WorldCom and Enron? Also, a question that's often lost in the media coverage, where did all the money go?
Roma Theus: There may be similarities between the failures of WorldCom and Enron. However, those similarities, if any, will not be fleshed out until Mr. Lay's trial is completed.
With respect to where the money went, that question always arises in fraud cases. Some of the money may never have existed. In essence, the supposed "wealth" of a corporate entity may have been largely smoke and mirrors. The consequence is that investors will have invested money in the company based on their good faith belief in false financial statements, public statements or other false information introduced into the public domain.
Do you think it was a good decision on Reid Weingarten's part, to put Ebbers on the stand?
Roma Theus: There may not have been much choice about putting Mr. Ebbers on the witness stand. According to Worldcom's former CFO, Mr. Ebbers directed him to falsify Worldcom's financials. Unless Mr. Ebbers had access to a witness who overheard the alleged discussions between him (Mr. Ebbers) and Mr. Sullivan, the only way to effectively refute Mr. Sullivan's testimony with live testimony was for Mr. Ebbers, himself, to testify.
The decision about having a defendant testify at trial is always difficult and must be made based on the evidence defense counsel is confronting in that case. Thus, Mr. Weingarten's decision cannot be evaluated on a good decision/bad decision continuum.
It was Sergeant Schultz, not Corporal.
Roma Theus: Touche.
Ebbers and the Sentencing guidelines:
If I am doing my math correctly isn't Ebbers looking at life imprisonment for every count:
Larceny by fraud is a base offense level of 7,
the amount of loss increases the offense level ... in this case he maxes out the scale since the loss exceeded $400 million :+30
He also had more than 250 victims: +2
also included conspiracy to evade regulatory officials so +2
He also got more than $1,000,000 from a bank for his crime : +4
And jeopardized the soundness of a financial institution (I.e., everyone holding worldcom stock): +4 more
Then as it involved securities fraud and he was on the Board of Directors : +4
That gives him a grand raw score of 59 which on the sentencing table is life imprisonment And he was sentenced on 9 counts correct?
Roma Theus: Mr. Ebbers has been convicted by the jury, but not yet sentenced. The sentencing is scheduled for June 13, 2005. Between now and then, defense counsel will prepare post-trial motions, some of which may be granted and some of which may be denied. Assuming all of those motions are denied, the Probation Department will prepare a PreSentence Investigation Report and Mr. Weingarter will prepare a detailed Sentencing Memorandum on behalf of Mr. Ebbers.
At the sentencing hearing, one of the critical issues will be whether the Trial Judge applies the Sentencing Guidelines. The way I read United States v. Booker, the Sentencing Guidelines are purely advisory and the Trial Judge may impose the sentence that he or she finds appropriate, applying the criteria set out in 18 U.S.C. Section 3553.
When will sentencing occur and what type of sentence is expected?
Roma Theus: The sentencing date is June 13, 2005. In light of the enormity of the alleged fraud and the financial injury to the entity, the public and employees of Worldcom, it is anticipatable that a term of imprisonment will be imposed.
New York, N.Y.:
What does the verdict signal for the "I didn't know about it Ken Lay defense?"
Roma Theus: The verdict in the Ebbers case suggests that the jury in that case rejected the "I didn't know defense." Whether Mr. Lay will have a similar experience in his case depends on the facts that he may be able to marshal in his favor. However, at a minimum the verdict in the Ebbers case will cause Mr. Lay and his counsel to seriously consider the advisability of heavily relying on such a defense.
Where would most likely Mr. Ebbers serve his time? Would it be a "Camp Cupcake" environment?
Roma Theus: If Mr. Ebbers is sentenced to a term of imprisonment, the Bureau of Prisons will designate Mr. Ebbers to serve his sentence at a specific institution. Mr. Ebbers counsel would undoubtedly request that Mr. Ebbers be allowed to serve any term sentence at a minimum security institution. There is no way, at this point, to determine where Mr. Ebbers might serve a term of imprisonment.
Do you see this issue as representative of a relatively recent sidestepping of ethical considerations or simply as longstanding behavior that is only these days being a focus of the media?
Roma Theus: In my view, the spate of recent prosecutions of corporate executives is the culmination of a process that began in the late 1980s and early 1990s. Criminal prosecutions of John Rigas (Adelphia Communications), Martha Stewart (the IM Clone case) and Frank Quattrone will have a tremendous deterrent effect on the executives of every publicly traded company.
Falls Church, Va.:
Hello and thanks for taking our questions. Now that Mr. Ebbers has been found guilty, is there any chance he will appeal? If no appeal, what happens next? And what happens to other cases pending against Mr. Sullivan and Mr. Beaumont? Thanks again.
Roma Theus: Mr. Ebbers will undoubtedly appeal. If he does not, he will simply have his sentencing and accept whatever punishment the Court may impose.
Messrs. Sullivan and Beaumont will likely be sentenced after Mr. Ebbers. This is so because the United States Government and the defense counsel for Sullivan and Beaumont will want to point to the value and effectiveness of their cooperation with the Government in the prosecution against Mr. Ebbers.
It seems like prosecutors laid out a simpler, more concise case against Ebbers than they did in the first Kozlowski trial. Does that account for the conviction in this case and the hung jury in the other? Are there lessons to be learned for a Kozlowski re-trail? And do people like Dennis Kozlowski and Ken Lay start to reconsider their pleas when the see a result like this?
Roma Theus: In any criminal case, and especially fraud cases, it is critical for the prosecution to be as clear and concise as feasible. It is impossible to say whether the approaches in the Ebbers and Kozlowski cases caused different results.
So far as re-consideration of pleas, many things cause an accused to re-consider a "Not Guilty" plea, e.g., finances, stress, embarrassment, etc. But, unless Mr. Lay or Mr. Kozlowski has a very favorable plea bargain offered to him, it does not seem likely that gentleman is likely to change his plea.
How long will the appeal process take to go through? Can you give an estimate?
Roma Theus: If Mr. Ebbers were to appeal to the United States Court of Appeals for the Second Circuit and to the United States Supreme Court, the appellate process could consume approximately two years.
Washington, D.C. :
How does the SarbanesOxley Act prevent episodes like WorldCom and Enron from occuring with such frequency and intensity again?
Roma Theus: No legislation alone will prevent misconduct. But having statutes like the Sarbanes Oxley Act enacted provides the United States Government with a ready tool to prosecute and deter corporate misconduct. The very existence of the Sarbanes Oxley Act will make every CEO and CFO of a publicly traded company seriously think about and worry about the accuracy of statements made in public filings. This heightened concern about accuracy ought to redound to the benefit of the investing public, and allow people to make more informed investing decisions. Criminal prosecutions under that statute will intensify the deterrent effect of the Act.
Re: Bridgewater, N.J.:
If the appellate process could take up to two years, is it feasible to assume that Mr. Ebbers would remain free pending appeal?
Also, assuming so, does he have the ability to work during that period?
Roma Theus: Mr. Ebbers' lawyers would assuredly request that his bond be continued after he is sentenced. But under 18 U.S.C. Section 3143, there is a statutory bias against post-conviction bonds; and I think that Mr. Ebbers would most likely be remanded after sentencing.
I know former Worldcom employees who were deeply affected by the Worldcom collapse. Does this verdict enhance their ability to get compensation for their financial loss? As a follow, how do I send roses to the jury?
Roma Theus: The verdict may not improve the ability of Worldcom employees to recover from their financial losses. The Court would definitely order restitution under 18 U.S.C. Secs. 3556 and 3663. What would be recovered by means of that restitutionary order is another matter.
We still see marketing experts use change to keep their price stickers below specific dollar amounts (like $99.99 instead of $100.00). Do you think the public can comprehend that $11 billion is actually $11,000 million, or at a glance do you think the public would be more surprised by a $400 million fraud vs. an $11 billion crime?
Roma Theus: This question really addresses issues in the realm of behavioral science as opposed to the law. However, I believe that the prosecutors and the Court in the Ebbers case will hammer home the enormity of the alleged loss here -- $11 Billion. Via analogies, graphics and the like, the colossal dimensions of an $11 Billion crime and the fallout from the same will be made painfully clear.
How many of those "up to 85 years" is Ebbers likely to get as a sentence -- especially now that sentencing guidelines are out the window?
Roma Theus: At this point, no one knows. If the Court in this case imposes a determinate sentence in line with the Sentencing Guidelines, Mr. Ebbers may spend the rest of his life in jail. On the other hand, if the Court reverts to the sentencing protocol that preceded the establishment of the Sentencing Guidelines, indeterminate sentencing, the Court may impose any sentence it deems fit from zero to 85 years.
I am a former employee of WorldCom/MCI. I am a former employee because I was laid off when I was seven months pregnant. I got no maternity leave and only eight weeks of severance, not to mention lost thousands when the stock went south (after we had been encouraged by management to buy it). Here's my question: how can the judge consider the fact that Ebbers gave millions to charitable organizations, to "lessen" his burden, when in essence the money was on loan from the company?
Roma Theus: When the Court sentences Mr. Ebbers, it will review his entire life as well as the criminal conduct alleged in the Indictment. See 18 U.S.C. Sec. 3553. Thus, if Mr. Ebbers actually made charitable contributions with funds he improperly obtained from Worldcom, those charitable contributions might weigh against Mr. Ebbers and exacerbate his situation in the eyes of the Court.
The discussion is now over. Thank you all for your questions.