NEW YORK, Feb. 3 -- The dramatic collapse of WorldCom Inc. in mid-2002 was precipitated in part by the growing unease of the mid-level accounting executives who had been ordered to make the fraudulent accounting entries that falsely pumped up the telecommunications company's bottom line, according to testimony at the criminal trial of former WorldCom chief executive Bernard J. Ebbers.
Mark Abide, the former director of property accounting, grew emotional on the stand Thursday as he described an April 2002 teleconference. Abide recounted that his direct supervisor ordered him to make entries in WorldCom's general ledger that would falsely reduce the company's operating expenses by classifying millions of dollars in line costs -- the fees the firm paid to use other carriers' networks -- as capital expenditure.
A witness said he talked with ex-WorldCom CEO Bernard J. Ebbers, above, about revenue.
(John Marshall Mantel -- AP)
|
|
Although others in the accounting department had been making similar entries for more than a year, Abide said he put his foot down when he was asked to make the alterations himself. "I kind of went off and said no way was I going to start booking that entry. I had asked all the way up, and I didn't get any support or any backup, and I wasn't going to start booking it," Abide said. His boss and peers "were silent for a minute, and then they said they understood," Abide said.
A few weeks later, Abide testified, he e-mailed the company's internal auditors an article from the Fort Worth Weekly about a former WorldCom budget analyst who claimed he had been laid off for questioning the company's accounting. "This is worth looking into from an audit perspective," Abide wrote on May 21.
Though the allegations in the article were completely unrelated to the line-cost fraud, Abide testified he was sure the e-mail would prompt the internal auditors to take a close look at the company's capital expenditures. "They would look back at 'capex' and find those entries," said Abide, who has not been prosecuted, unlike other senior accountants involved with the fraud.
The director of internal audit, Cynthia Cooper, uncovered the fraud and reported it to WorldCom's board in June 2002. The company filed for bankruptcy protection in July 2002 and now does business as MCI Inc. of Ashburn.
Prosecutors contend Ebbers, 63, orchestrated the fraud to save his personal fortune. They have charged him with securities fraud, making false filings to the Securities and Exchange Commission and conspiring to falsely boost WorldCom's bottom line by mischaracterizing line costs and failing to tell investors that the company was changing the way it tracked revenue to inflate results.
The defense team, led by Reid H. Weingarten, argues that Ebbers relied on and was misled by his firm's accounting experts, especially former chief financial officer Scott D. Sullivan. Sullivan has pleaded guilty to fraud and is slated to testify next week.
The mid-level executives who have been on the stand this week have had little to say about Ebbers's knowledge of the expense situation. Abide and his colleagues in the general accounting department Betty L. Vinson and Troy M. Normand all have testified that they never had a direct conversation about the accounting with Ebbers.
But all three accounting executives shared a sense of growing discomfort with the entries they were asked to make. By the time Abide put his foot down in April 2002, Normand also had refused to continue making false entries and had asked their boss Buford Yates Jr. to include his name in a round of layoffs planned for June.
By contrast, the next government witness, WorldCom revenue analyst G. Brady Connor, testified that he made regular presentations to Ebbers about the company's revenue and that Ebbers asked detailed questions of Connor's superiors. In March 2001, after receiving one of Connor's reports, Ebbers used the numbers to put together his own spreadsheet and then sent a fax to Connor's boss, expressing concern that the company was falling short of its targets. "I have been trying to compare revenue," Ebbers wrote. "Have I done the calculations right, and will we make all of this up in March?"
Connor's boss replied, "In the schedule that you sent me, the calculations were not correct and I am sure this is why you were concerned. . . . The short answer is that we are on track."
That same month, Sullivan ordered the company's accountants to start disguising line costs as capital expenditures.
