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Ebbers Found Guilty

Brooke A. Masters
Washington Post Staff Writer
Wednesday, March 16, 2005; 12:00 PM

Washington Post staff writer Brooke A. Masters was online to discuss the trial of former WorldCom chief executive Bernard J. Ebbers.

Ebbers on Tuesday 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.


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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.

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Brooke A. Masters: Hi everybody.

Thanks for joining us today. I've just spent the past eight weeks sitting in a Manhattan courtroom watching the Ebbers trial. It feels a little weird to be back in the office, but I'm excited to talk about what I saw and heard. So, fire away.

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New York: I heard on a news report last night that Ebbers remains free on bail pending appeal. Why is it that white-collar criminals are sometimes released pending appeal while most people convicted of a serious crime are jailed during the appeals process? If Ebbers were an accounting clerk convicted of embezzling $20,000, he wouldn't have this extra liberty. Why do we accord this privilege to a sub-class of convicted felon?

Brooke A. Masters: The standards for bail are two-fold: is the defendant a risk of flight and is he or she a danger to society. White-collar defendants are rarely a danger to society and they are often well-grounded in their communities so they can more easily argue that they are not flight risks. Once a defendant is out on bail pending trial, he or she usually stays out until sentencing. That is equally true for a low-level clerk and a CEO.

As for bail pending appeal, judges usually decide that based on the strength of the appeal issues. Richer defendants often have better lawyers who make better appeal arguments, so they are often--but not always--more likely to get bail pending appeal

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Miami: How could external auditors be outsmarted for such a long time? Why is no mention made about them? Who they were?

Brooke A. Masters: The outside auditors were Arthur Andersen. There was testimony that the inside accountants deliberately moved the money around to hide it from Andersen.

Brooke A. Masters: The other explanation is that the expense "adjustments" were done to hide the fact that WorldCom's line costs--fees paid to other carriers--had suddenly shot up so the faked results would have looked normal to the auditors.

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Cleveland: I wonder what kept the court from convicting the executives involved in Enron with the same charges.

Brooke A. Masters: Enron's leaders Jeffrey Skilling, Kenneth L. Lay and Richard Causey have been indicted and are facing trial by early next year in Houston. We'll have to see what that jury thinks.

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Hilliard, Ohio: I still believe that Scott Sullivan masterminded the scheme and am curious about his sentencing prospects. How much of a sentence reduction did the government agree to in exchange for his testimony? I hope not much.

Brooke A. Masters: The New York prosecutors did not guarantee Sullivan any particular reduction (unlike the Enron prosecutors, who gave CFO Andrew Fastow a promised max. of 10 years). Still, I wouldn't be surprised if he gets just under 10 (qualifying him for a minimum security facility)instead of the 25 or 30 years he would have gotten without cooperating.

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Washington: What sort of political connections does Ebbers have and what sort of campaign contributions does he make that would help reduce or change his sentence?

Brooke A. Masters: At this point, campaign contributions would be worthless. Judge Barbara Jones has sole discretion over the sentence.

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Fairfax, Va.: As a former WorldCom employee, I would like to know what type of deal Scott Sullivan cut. In my mind he is as guilty as Bernie Ebbers - if not more so. After all Sullivan is the one with the financial background (experience and education). Has anyone a list of players and what time they are facing? I did not have a lot to lose but some of my friends lost it all. It would be nice to know that those who cheated will now have to pay.

washingtonpost.com: Verdict Stirs Up Mix of Emotion For Employees

Brooke A. Masters: See above for Sullivan's deal. The lower level players--accounting managers Betty Vinson and Troy Normand and controller David Myers also said they were hoping to avoid prison entirely through their cooperation. It's not clear whether they will succeed.

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DeRidder, La.: Fraud itself is not a crime, but a civil offense. In the Ebbers case, the alleged crime was a failure to disclose material information. Ebbers was convicted on the basis of the uncorroborated testimony of his CFO, who initially may have hidden the truth from Ebbers to protect himself, and who later had motive to lie against Ebbers at trail in exchange for a reduction in sentence. One juror has publicly conceded Sullivan's account was not given full credence by the jury, but merely sounded more believable that Ebbers's own testimony. This lacks the judicial logic necessary for conviction. What are Ebbers chances for reversal on appeal?

Brooke A. Masters: The government would argue that Sullivan was not uncorroborated. David Myers testified about an encounter with Ebbers in which he says the CEO apologized for making the accountants make false entries. Plus there were a couple of memos and voicemails that made clear that Ebbers knew--at a minimum--about the revenue side tinkering that was going on. There was also circumstantial evidence strongly suggesting Ebbers knew or ought to have known about the expense--ie line cost--fraud.

He got reports showing that line costs were ping ponging by $800 million in a single quarter--nearly 50 percent--and there is ample evidence that he carefully reviewed other parts of those reports, so prosecutors argued that he must have seen the line cost numbers as well.

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Alexandria, Va.: As an MCI (Survivor) employee, I am very satisfied with the legal system this time... Now let's wait for the sentencing in June...But whatever he gets won't make up for the financial and emotional roller coaster he has put us thru, current and laid off employees.

Brooke A. Masters: I've heard similar things from a number of current and former employees.

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Lexington, Ky.: Judging from his appearance on 60 Minutes on Sunday, Kenneth Lay is going to be using much the same defense as Ebbers did: the "how could I know what was going on, I'm just the CEO" defense. Given this verdict, do you expect Lay and his attorneys to change their tone?

Brooke A. Masters: Legal analysts I talked to said Lay has to stick with that defense because he can't argue there wasn't a fraud.

The analysts said Lay may actually do better because he was semi-retired when much of the Enron fraud was hatched and only came back into the mess in the final months before it collapsed.

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Reston, Va.: Brooke, will they make an example of Ebbers or will they give him a slap on the hand?

Thanks!

Brooke A. Masters: It's very hard to predict Ebbers's prison time because of the Supreme Court decision in January that declared the federal sentencing guidelines unconstitutional. If the judge decides to follow the guidelines anyway, Ebbers would likely get two decades in prison. He could also get the statutory maximum of 85 years, though that is highly unlikely. The judge may cut him some break because he is 63 and has a heart condition.

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Fairfax, Va.: The evidence was all circumstantial though, right? No incriminating e-mails, etc....

washingtonpost.com: Verdict Weakens Ignorance Defense

Brooke A. Masters: There were a couple of memos written by Ebbers in which he talks about "one-time events" events being necessary for WorldCom to make its predicted revenue numbers. The government argued that those one time events were not properly disclosed

His defense was that he trusted Sullivan to make the proper disclosures.

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Arlington, Va.: Do you think giving Ebbers 85 years would serve as a deterrent? Don't most CEOs consider themselves geniuses and tell themselves, 'I won't get caught?'

Brooke A. Masters: It's hard to know. Some studies suggest that white-collar criminals are more likely to be deterred by long sentences than violent criminals because financial crimes generally take planning and there's time for someone to have second thoughts.

But if you look at the history of business crimes in this country, it seems to go in waves. There will be a batch of crimes, followed by a crackdown and then a period of quiet, and then another set of crimes. (For example, the S&L crisis and the insider trading scandals of the late 80s and then a period with fewer cases until 2002) Some legal analysts say this shows that long sentences do have an effect but that the effect doesn't last that long.

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Colorado Springs: To what extent did the bankers, specifically Citibank escape justice?

Brooke A. Masters: Citibank has paid $2.58 billion to settle a class action suit filed by Worldcom investors who argued that the bank failed to warn them of WorldCom's problem

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Alexandria, Va.: Hi Brooke: While I was happy to see that a corporate criminal was being justly sentenced, I really would like to see a "Cops-like" rendition of police arresting such criminals. Instead of giving them all of the civilized niceties that come with their wealth and status, why not treat those who steal $500 million the same way that you would treat a criminal who just stole an old lady's purse with $40 in it (i.e. chase them down, tackle them, etc)?

Brooke A. Masters: In theory, handcuffs are there to protect the police and public, not to serve as a source of humiliation. That's why most white collar criminals are allowed to self-surrender.

In 2002, a number of chief executives--including Adelphia's John Rigas--were handcuffed and forced to do a "perp walk" in front of the media cameras and it was tremendously controversial in the legal community. It hasn't happened much since then.

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Madison, Wis.: Hi Brooke, I've now seen and heard a couple of lawyers are drawing the conclusion from this trial that it was a bad idea to let Ebbers testify in his own defense. I don't know whether you would agree, but I'm curious about whether people are drawing this conclusion because of Ebbers's own performance (say, the number of times he responded that he "couldn't remember"), or because it's now seen as a bad idea to put any CEO on the stand in this kind of case?

Brooke A. Masters: I think all the Monday morning quarterbacks should try playing the game themselves before they hurl criticisms.

Ebbers was not fabulous on the stand, but, having sat through the evidence, I can see why his attorney Reid Weingarten put him up there. If jurors completely believed Scott Sullivan, the case was over, and Ebbers was the only person who could get on the stand and assert Sullivan was lying.

The other CEOs on trial--HealthSouth's Scrushy, Enron's Lay--will face similar dilemmas. If they get on, they will face humiliating questions. If they don't, the witnesses against them will seem stronger.

Plus, Martha Stewart's lawyer faced the opposite criticism after she got convicted after not taking the stand.

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Arlington, Va.: Has Ebbers had to surrender his passport? Under any reasonable construction of the sentencing guideline ranges, his sentence will all but amount to a life term, so it would seem that he now has every incentive to flee the country.

Brooke A. Masters: I believe he has surrendered his passport--defendants are almost always required to do so--but I don't know that for a fact.

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New York: If I were on trial for (essentially) my life, I think I'd have constructed a more legitimate justification for my accounting "ignorance" than "I got bad grades in college." I think the fact that he had the smarts, the savviness, and the business acumen to be CEO of one of the most powerful corporations in the nation trumps whatever C's he might have gotten in sophomore year econ. Pathetic.

I just want to add that I hopes this verdict (combined with the scores of others in the same ilk) will inform adherents of the "Martha was crucified for being a powerful woman!" credo that rich, white, powerful men are being gone after just as aggressively. Read the newspapers before you make uninformed comments, please.

Brooke A. Masters: That's an oversimplification of his defense. Ebbers basically said that he was never an expert in accounting so he trusted Sullivan to make the right decisions and Sullivan lied to him. The jury didn't buy it.

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Tarboro, N.C.: Ebbers should be remanded to prison immediately... Regardless of any medical conditions, he does not deserve any favorable treatment... Don't loose sight of all the people he ruined... This man has no regard for others... He should never be a free man again...

Victor

Brooke A. Masters: Emotions run very high in this case.

Ebbers isn't getting unusual treatment for a white-collar defendant. Most of them stay out of prison until sentencing and are allowed to report to prison whenever the system has room for them.

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Portland, Ore.: Do you think that, if Joe Nacchio, ex-Qwest CEO, is found guilty in his SEC civil case, it will make it more likely that he will then also face criminal charges? He directed a massive fraud, like Ebbers, that hurt MANY stockholders and employees.

Brooke A. Masters: I have to confess that I have been so focused on Ebbers that I haven't read the evidence in the Qwest case. I will say this: the SEC and the Justice Department have been trying to coordinate their work in recent years and if they are both bringing cases, they try to do it simultaneously if possible.

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Bethesda, Md.: Just curious-- have you looked through the Post's archives to see whether there was any negative coverage of Ebbers before his downfall?

Brooke A. Masters: There was some criticism of him at the time when the Justice Department blocked the Sprint merger in 2000 (that he should have seen it coming), and the Post like other papers began raising questions about the telecom sector--including WorldCom--by early 2002.

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Washington, D.C.: From what I saw of the trial, there was no "smoking gun." Rather, I got the feeling Ebbers is guilty of allowing a corrupt climate to foster under his stewardship. If this is true, would it be fair to compare Ebbers's experience to Rumsfeld's stewardship of the Pentagon, and say, the prison abuse scandals? More broadly, aren't we moving into an era where "somebody" is expected to take responsibility, especially, the "boss?"

Brooke A. Masters: Some of the analysts I talked to said that the central message of this case was that CEOs will be held responsible for the fraud that occurs on their watch. I don't cover the Pentagon so I wouldn't want to speculate about Rumsfeld.

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Vienna, Va.: I find two of the defense's statements laughable, and I wonder if you could comment on whether I am alone in finding them completely without merit.

1. He did not act with malice. Yeah just like the guy who steals bread to stay alive, he wasn't trying to hurt anyone, he was just trying to make as much money as possible, what's wrong with that? He was going on instinct, how can you blame him?

2. His trial was unfair because exonerating witnesses were not given immunity. So he wanted crooks to get him off the hook without having to pay for it. Why exactly couldn't he have called them as witnesses anyway? They would be under oath, just like any other witness.

Of course these will not be so hilarious if they actually do get him off...

Brooke A. Masters: I don't believe the ebbers defense ever argued that he did not act with malice. They said he didn't know about the line cost issues and that he believed that they were making agressive but legitimate changes on the revenue side.

The other witness issue is complex. Ebbers argued that three people who were a lot closer to the numbers than he was also didn't know about the line cost fraud and he wanted to call them to testify.

But those witnesses said that if they were called without getting immunity, they would take the 5th amendment and refuse to answer any questions at all. They can do that under the Constitution.

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White Plains, Md.: I've worked for 3 different companies under the leadership of Bernie Ebbers. During the trial, was there any discussion about how these actions impacted thousands of company employees and their jobs?

Brooke A. Masters: The judge sharply limited discussion of how the fraud affected workers and investors because the jury is not supposed to take that into account.

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New York: As you observed the trial, did you see much change in the tone of the proceedings? Did it look like a conviction from the beginning, or was there some back and forth as each side presented its case?

Brooke A. Masters: I thought it was a very close case. The government did not have a lot of documentary evidence and their star witness--Sullivan--had serious credibility issues that the defense did a good job of highlighting. I was not surprised that the jury took a while deciding.

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Morrisville, N.C.: A pragmatic question: why don't more indicted white collar criminals with net worths in the millions of dollars simply flee U.S. jurisdiction rather than take their chances with criminal charges that carry potentially massive penalties (such as the 24-year sentence meted out to that Dynegy executive)? Seriously.

Brooke A. Masters: Some of them do. But most have families they care about and many have convinced themselves they can win their cases.

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Portland, Maine: My retirement account is unfortunately much lighter due to the manipulation of Ebbers and others which caused the bankruptcy of Worldcom. My question is whether the legal system will be able to strip Ebbers and his family of their vast wealth since most of it was the result of Worldcom? Or, will they be able to keep millions of dollars to keep living a lifestyle that small investors like myself can only imagine. And, if so this wealth will eventually pass on to future Ebber generations.

Brooke A. Masters: We at the Post are always very careful to say that the fraud did not "cause" the bankruptcy of WorldCom. The stock had already lost 95 percent of its peak value before the fraud was disclosed.

Ebbers doesn't appear to have vast wealth any more and he officially owes more than $350 million to WorldCom's successor company MCI, so if more of money does appear, it will go to MCI.

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Arlington, Va.: What does this say about the push for corporate governance? We're starting to hear executives whine about the cost of added regulation -- think the verdict will shut them up?

Brooke A. Masters: actually it might do the opposite---ebbers was convicted of false filings even though he didn't have to go through the new Sarbanes Oxley procedure and some lawyers are now arguing that the procedure is unnecessary.

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Dover, Ohio: Should the government be allowed to extort testimony at a trial? By having a long sentence hanging over his head, Sullivan was obviously extorted to testifying just as the prosecution wanted. He was most likely even given the words to say. Should this be legal and allowable? Does not the Constitution guarantee a fair trial over and over again? Can anyone think that extorted testimony yields a fair trial?

Brooke A. Masters: This is a fundamental issue in our justice system. Prosecutors always say they have to take their witnesses as they find them and honest citizens rarely know the details of criminal conspiracies. But there are many many cases of people being convicted on the words of known felons, jailhouse snitches and other people hoping to curry favor with the government. There's no easy answer.

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Richmond, Va.: Somewhat related question: every sued or charged executive says exactly the same thing: "I didn't know". This claim of ignorance doesn't work because of the "known or should have known" standard. I often wonder why this standard doesn't seem to be applied to politicians. Do you have any thoughts on this? Why does it work for politicians but not businessmen?

Brooke A. Masters: Most prosecutors I know won't bring a case if the best they can do is argue "he should have known." That's a fallback position for wavering jurors.

I'll leave the political side of the equation to the experts over on the Post's national desk.

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New York: I'm aware that his defense was more complex than merely waving around his mediocre college transcript. However I think that was a fairly decent reader's digest version, and I do believe that his unimpressive college record was brought up in questioning. If I were a juror and heard anything as asinine as college grades being used as even a small part of a defense strategy for these crimes, I would have been offended and outraged. Just my two cents.

Brooke A. Masters: Witnesses routinely talk about their education as a way of introducing themselves to the jury so, in practice, it doesn't sound that odd when the defendant does the same thing.

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Brooke A. Masters: It's 1 pm and I've got to run to do an interview---another day, another fraud to write about. Thanks so much everyone for participating and for sending in thoughtful questions. I'm sorry I didn't get to everyone.

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