Defense Tries to Separate Ebbers From Accounting

The trial of former WorldCom chief executive Bernard J. Ebbers is into its second full week. (David Karp -- Bloomberg News)

NEW YORK, Jan. 31 -- Former WorldCom Inc. chief executive Bernard J. Ebbers's attorney on Monday used his cross-examination of the company's former controller to try to distance Ebbers from the $11 billion accounting fraud that helped bring down the company in 2002.

"Did you ever know [Ebbers] to make an accounting decision?" defense attorney Reid H. Weingarten asked former controller David F. Myers. "Not that I'm aware of," Myers replied during his third day on the stand at Ebbers's criminal trial.

"Did you ever go to him for assistance in making an accounting decision?" Weingarten asked. "No," said Myers, who has pleaded guilty to conspiring with former WorldCom chief financial officer Scott D. Sullivan to pump up the company's bottom line by misclassifying billions of dollars in operating expenses -- known as line costs -- as capital investments.

"Did you stop by and say, 'Bernie, Scott's asking me to do some bad accounting'?" Weingarten asked. "No, I did not," Myers said.

Under questioning, Myers also said Sullivan had told Myers and the company's top accountants in 2000 that "I and no one else am responsible" for the first key decision to hide expenses by secretly reducing company reserves. WorldCom declared bankruptcy in July 2002 and now does business as MCI Inc. of Ashburn.

As Ebbers's trial on charges of conspiracy, securities fraud and falsifying Securities and Exchange Commission filings begins its second full week, lawyers for both sides are focusing on exactly how much Ebbers, 63, knew about the accounting at the telecommunications giant he built.

Prosecutors argue that Ebbers orchestrated the massive fraud to keep WorldCom's stock price from dropping and to prevent banks from demanding he repay $400 million in personal loans that were secured with WorldCom shares. But the defense team led by Weingarten contends that Ebbers, who was not trained in accounting, relied on and was misled by Sullivan, Myers and their underlings.

Weingarten on Monday began making a case that Ebbers preferred to focus on the company's administrative costs, leaving the crucial line cost area to others. Line costs, the fees WorldCom paid to other carriers to use their networks, were the company's single largest expense. The defense attorney introduced an e-mail in which Myers wrote that Ebbers had questioned an $18,000 overrun in supplies and a second e-mail in which Sullivan said a consultant's proposal to help the company cut expenses in the wake of a merger could become an issue because "it encroaches on someone's favorite area. Maybe they should send the letter to Bernie."

By contrast, when Ebbers attended his first meeting on line costs in June 2001, he "thanked Sullivan for allowing him to participate," Myers said. Myers also testified that, while Sullivan was intimately involved in the process of preparing the company's quarterly financial filings with the SEC, Ebbers received only a few documents as part of an e-mail distribution list.

Before the cross-examination started, Myers provided crucial evidence that fraud had been committed, as he walked the jury through WorldCom's SEC filings and pointed out which numbers were false and misrepresented the company's financial situation. He also explained that the scheme collapsed in June 2002, when the company's internal auditor, Cynthia Cooper, alerted the audit committee of the board of directors to problems with the company's accounting.

U.S. District Judge Barbara S. Jones excused a juror on Monday for unexplained "personal reasons." The panel now has seven women and five men. The three remaining alternates are women.

Lawyers for both sides expect Myers to finish his testimony Tuesday. Upcoming witnesses include Betty L. Vinson, a lower-ranking WorldCom executive who threatened to quit when she was ordered to falsify the company's books but has pleaded guilty to continuing to participate in the scheme for more than a year. The trial is expected to last into March.