Court Rejects Ebbers's Appeal

By Carrie Johnson
Washington Post Staff Writer
Saturday, July 29, 2006

A federal appeals court upheld the fraud conviction of WorldCom Inc. founder Bernard J. Ebbers yesterday, rejecting defense arguments that he was deprived of a fair trial and paving the way for the once-brash mogul to spend the rest of his life in prison.

The U.S. Court of Appeals for the 2nd Circuit acknowledged that the trajectory of Ebbers's life contained "an element of tragedy." Ebbers, a former basketball coach and motel operator, powered his way to the top of the telecommunications industry before his conviction last year on nine criminal charges, including conspiracy, securities fraud and false statements.

The three-judge panel also affirmed Ebbers's 25-year prison sentence, one of the stiffest penalties for a former chief executive in a string of white-collar convictions. The judges called the sentence "harsh but not unreasonable." Under federal rules, inmates must serve at least 85 percent of their sentence -- making Ebbers eligible for release after two decades.

Ebbers, 64, has been free on bail pending the results of his appeal. He still can ask the full appeals court to hear his case. But legal experts said Ebbers could be ordered to report to prison soon, once judges and the Bureau of Prisons set a surrender date.

"The securities fraud here was not puffery or cheerleading or even a misguided effort to protect the company, its employees, and its shareholders," Senior Judge Ralph K. Winter wrote. "The methods used were specifically intended to create a false picture of profitability even for professional analysts that, in Ebbers's case, was motivated by his personal financial circumstances."

The appeals court beat back defense claims that prosecutors overreached by refusing to grant immunity to insiders whose testimony might have exonerated Ebbers. WorldCom's 2002 bankruptcy protection filing after an $11 billion fraud was the largest in U.S. history. The company became MCI Inc. and eventually merged into Verizon Communications Inc.

In the decision, anticipated since a spirited oral argument Jan. 30, the judges ruled that the government has "no general obligation" to immunize witnesses to help criminal defendants. Indeed, the appeals court panel said such a move could throw up roadblocks for prosecutors if they later decided to charge the witnesses based on their own role in a fraud case.

Defense lawyers did not meet the high burden of showing that testimony by former chief operating officer Ronald R. Beaumont and onetime vice presidents Stephanie Scott and Ronald Lomenzo would have affected "the total mix of evidence" before the jury, according to the ruling. The judges said they reviewed FBI interview reports and other materials and concluded that at least one of the defense arguments about witness statements "simply doesn't wash."

Ebbers's defense team also argued that the sentence was overly harsh, given that the star witness against their client, former finance chief Scott D. Sullivan, is serving a five-year term in a Georgia prison. Earlier this week, the Securities and Exchange Commission asked another judge to waive Sullivan's $13.6 million fine because he was unable to pay. The judge in that case has requested that the government provide more information at a hearing in New York next week.

The appeals court said it recognized that executives convicted of fraud sometimes faced harsher penalties than violent criminals, but the decision pointed out that the sentencing guidelines for judges reflect Congress's policy judgment.

"It may well be that all but the most trivial frauds in publicly traded companies may trigger sentences amounting to life imprisonment," the ruling said.

Ebbers already had agreed to forfeit cash and assets worth as much as $45 million, or about 95 percent of his holdings, to settle lawsuits filed by WorldCom shareholders. Federal prosecutors in New York cited Ebbers's expensive lifestyle, and his overspending, as a motive to hide WorldCom's mounting financial troubles.

A spokeswoman for Michael J. Garcia, the U.S. attorney in the Southern District of New York, declined to comment on the decision.

Washington lawyer Reid H. Weingarten, who represented Ebbers at trial and on appeal, said he was "deeply disappointed" by the ruling.

"We didn't expect the Second Circuit to bless the prosecution's cynical manipulation of witnesses that prevented the jury from hearing important, persuasive and exculpatory evidence," Weingarten said in a prepared statement. "We are not giving up and won't stop fighting until Bernie Ebbers is completely vindicated."

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