NEW YORK, Feb. 24 -- The former chairman of WorldCom Inc. testified Thursday that Scott D. Sullivan, the chief financial officer, told him in June 2002 that chief executive Bernard J. Ebbers "did not know of" the accounting tricks used to hide billions of dollars in expenses from investors.
Bert C. Roberts's testimony for the defense at Ebbers's criminal trial was in contrast to Sullivan's assertions earlier in the trial that he repeatedly told Ebbers in 2000 through 2002 that the company's accountants were making "adjustments that weren't right" in response to Ebbers's demands to "hit the numbers" for revenue growth and earnings that Wall Street was expecting.
Sullivan, who pleaded guilty to securities fraud, was the government's star witness and the only one to directly link Ebbers to the company's decision to falsely reclassify operating expenses known as line costs as capital expenditures.
Ebbers, 63, is charged with securities fraud, filing false documents with the Securities and Exchange Commission and conspiring to boost WorldCom's bottom line by hiding expenses and making unannounced changes to the way it tracked revenue. WorldCom went into Chapter 11 bankruptcy protection in 2002 and now operates as Ashburn-based MCI Inc.
The defense contends that Ebbers entrusted the company's accounting to Sullivan, who masterminded the scheme and is now blaming Ebbers to reduce his prison sentence. Led by Reid H. Weingarten of the District, the defense has so far called three witnesses to highlight discrepancies in Sullivan's version of events, including Roberts and Cynthia Cooper, WorldCom's whistle-blowing internal auditor who uncovered the fraud.
Roberts testified that on June 20, 2002, the day he learned of the accounting problem, "I asked Scott if Bernie knew. Scott's answer to me was that Bernie did not know of the journal entries" to the company's books. "I did not pursue the issue further," Roberts said. On cross-examination of Roberts, the government emphasized that Sullivan used the phrase "journal entries" rather than a broader term like fraud.
Earlier in the trial, Sullivan testified that he has consistently said that Ebbers was involved and he did not remember talking to Roberts about the subject. Cooper offered testimony that the defense can also use to cast doubts on Sullivan's version of events, telling the jury that when she first asked Sullivan about the scam on June 11, 2002, he did not mention Ebbers. Ten days later, the finance chief told the audit committee, "I want to make clear that this was my idea, and I am responsible for this," Cooper said.
Cooper also described a series of run-ins she had with Sullivan in the early months of 2002 over her efforts to audit the company's wireless division and determine whether it had adequate reserves to cover bills that were not paid. Sullivan and other WorldCom officials have testified that they sometimes tampered with various reserve accounts to reduce reported expenses.
In March, Cooper said, Sullivan asked her to alter the report she planned to send to the audit committee to remove statements made by a senior wireless executive and a particular attachment. When she refused, telling him "I felt I had an obligation," Sullivan "became angry. He mocked me: 'You feel an obligation. You feel an obligation.' He ended up hanging up."
When she mentioned the spat to Ebbers, Cooper said, the chief executive responded differently. "He said, 'Leave it in. Tell the audit committee what you need to tell them.' "
Sullivan and Cooper continued to spar over the wireless issue that spring. In April, she said, Sullivan tracked her down by calling her husband at home and chastised her for talking to the company's outside auditors about reserves rather than going through the comptroller, David F. Myers. "He was angry and aggravated," Cooper said.
Two days after that, Cooper said, the official in charge of wireless stopped cooperating, so she gave Sullivan another call.
"He started screaming at me, 'This is all your fault.' He went into a tirade, and I was quite shaken and upset. I was concerned I might lose my job," she testified. A month later Cooper uncovered the line-cost fraud.
U.S. District Judge Barbara S. Jones adjourned the trial until Monday to consider the defense efforts to clear the way for testimony from three former WorldCom executives who Sullivan has said knew about at least part of the fraud. All three have said they will not testify unless Jones grants them immunity from prosecution. If Jones turns down the immunity request, the defense would then seek to introduce the FBI's reports on what the three officials told government investigators.
