NEW YORK, Feb. 1 -- WorldCom Inc. chief executive Bernard J. Ebbers was in desperate financial straits as the company's stock price fell in October 2000. The chief executive's bank was demanding more collateral for his $400 million in loans, and he had already put up the last of his personal stock, Ebbers's personal banker testified at his criminal trial yesterday.
The crisis reached a head Nov. 1, when bank officials threatened to sell millions of Ebbers's WorldCom shares unless a company officer signed a document guaranteeing $75 million of Ebbers's loans by 2 p.m. that day, Jayne Hammond, a former "relationship manager" for Bank of America Corp., told the 15-member jury. As the stock continued to fall, the bank demanded that Ebbers and the company promise to instantly repay tens of millions of dollars if WorldCom's share price fell below $12 and repay the entire loan if the stock dropped below $10, Hammond said.
Ex-WorldCom CEO Bernard J. Ebbers had $400 million in loans, his former banker testified.
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Her testimony provides evidence that Ebbers would have had a financial motive for participating in what prosecutors say was a conspiracy to pump up WorldCom's bottom line from 2000 to 2002 by understating operating expenses known as line costs and increasing revenue with one-time accounting tricks. Ebbers, 63, is charged with conspiracy, securities fraud and making false filings with the Securities and Exchange Commission.
Ebbers's defense team, led by Reid H. Weingarten of Washington, contends he relied on and was misled by the company's chief financial officer, Scott D. Sullivan, and controller, David F. Myers.
Hammond testified that in the late 1990s, Ebbers borrowed millions of dollars using his WorldCom shares as collateral but that the stock price's precipitous fall in 2000 led the bank to make a series of demands for more collateral, a practice known as margin calls.
Ebbers initially responded by putting up 582,000 shares that he kept in his desk drawer because they had sentimental value, Hammond said. Next he agreed to a "forward sale" that gave him cash to cover the margin call in exchange for a promise to sell 3 million shares in 18 months -- an option he preferred to outright sale because he would be able to keep some of the shares if the company's fortunes improved.
Ultimately, WorldCom had to step in. The company covered Ebbers's entire debt before filed for bankruptcy protection in July 2002. The firm, which has acknowledged $11 billion in accounting fraud, now does business as MCI Inc. of Ashburn.
On cross-examination, the defense team got Hammond to point out that even as the bank was demanding more collateral in December 2000, her own documents showed Ebbers had non-WorldCom assets of $390 million -- including a yacht, hotels, a ranch, timberland, farms and a shipyard -- worth $42 million more than his total accumulated debt.
Hammond's testimony came after Weingarten finished cross-examining Myers, who has pleaded guilty to conspiring with Sullivan and others to hide expenses. The defense lawyer sought to highlight specific instances in which Myers and others lied to Ebbers or failed to inform him about legally questionable actions they were taking.
In early 2001, for example, Myers met directly with Ebbers to discuss how the accounting department was dividing expenses between the company's two publicly traded tracking stocks -- WorldCom Group and MCI Group. Myers conceded under questioning from Weingarten that he did not tell Ebbers of his belief that he and Sullivan were not following proper procedures.
"You were hiding your and Scott's wrongdoing from Mr. Ebbers, were you not?" the defense attorney asked. "To some degree, yes," Myers said.
