By Brooke A. Masters
Washington Post Staff Writer
Tuesday, January 31, 2006; D01

NEW YORK, Jan. 30 -- Federal judges hearing former WorldCom Inc. chief executive Bernard J. Ebbers's appeal of his fraud conviction sharply questioned prosecutors Monday about whether the government used the immunity process to take an unfair tactical advantage.

Lawyers for Ebbers, who remains free while he appeals his conviction and 25-year sentence, have made the government's decision not to grant three former top WorldCom executives immunity from prosecution the centerpiece of their appeal.

Washington-based Reid H. Weingarten told the U.S. Court of Appeals for the 2nd Circuit that the government deliberately "put very important evidence beyond our reach" by refusing to rule out bringing cases against the three executives, including former chief operating officer Ronald R. Beaumont.

All three witnesses then refused to testify in Ebbers's defense, even though they had given statements to the FBI that Weingarten said supported Ebbers's contention that he and other WorldCom executives were lied to by former finance chief Scott D. Sullivan. Sullivan, who pleaded guilty and became the government's star witness, is serving five years at a federal prison in Georgia for helping direct the $11 billion accounting fraud.

Assistant U.S. Attorney William F. Johnson countered that Beaumont and the other two executives "still remain potential defendants" and that their testimony would not have cleared Ebbers.

But Johnson squirmed when U.S. Circuit Judge Jose A. Cabranes asked whether the government had done any new work investigating the three WorldCom executives since the start of Ebbers's trial in early 2005. After a long pause -- remarked upon by the judge -- Johnson said no. "We're not actively investigating," he said, but later he added, "There was certainly no manipulation effort here to keep the witnesses from testifying."

Another member of the three-judge panel, Barrington D. Parker Jr., also appeared skeptical. It was "curious," he said, that the investigation of Beaumont and the others "fell into some black hole. That approach could really eviscerate the case law on unavailability [of witnesses], and the ability to manipulate could become problematic."

Defense lawyers in the Enron Corp. trial have raised a similar issue in pretrial motions, arguing that potential witnesses whose testimony could be helpful to former chairman Kenneth L. Lay and former chief executive Jeffery K. Skilling should be granted immunity from prosecution to allow them to testify without fear.

Weingarten argued that Beaumont's refusal to testify was particularly crucial because Sullivan had told the FBI that he had informed both Ebbers and Beaumont about the central fraud in the case -- the decision to treat line costs, which are operating expenses, as capital expenditures.

Beaumont, meanwhile, told the FBI that he did not know about the fraud. "It's a short jump from if [Sullivan] lied about Beaumont's knowledge to he lied about Ebbers's knowledge," Weingarten said. "On a scale of 1 to 10, that's an 11."

The judges also asked both sides to discuss the fairness of Ebbers's 25-year sentence, another issue in the appeal. "There are many violent criminals who don't get 25 years in prison," Cabranes observed.

Johnson argued that WorldCom's accounting fraud "affected literally millions of people" who were left holding worthless shares when the once high-flying long-distance company filed for bankruptcy protection in 2002. The company renamed itself MCI Inc. and was absorbed by Verizon Communications Inc.

Weingarten countered that "it shocks the conscience" that Ebbers was given 25 years, while Sullivan got five years and former WorldCom controller David F. Myers (another government witness) received a one-year sentence.

The court did not indicate when it would issue its ruling.

Federal prosecutors declined to comment after the brief hearing, and Ebbers, 64, said he was under strict orders from his lawyers not to talk about the case. Weingarten, though, was upbeat. "Somewhere along the line, justice is going to be done in this case, and I hope it's here," he said. "We're optimistic and we have great issues."