Ebbers Starts 25-Year Term For Fraud at WorldCom

By Brooke A. Masters and Amy Joyce
Washington Post Staff Writers
Wednesday, September 27, 2006

Former WorldCom Inc. chief executive Bernard J. Ebbers reported yesterday to a federal prison in central Louisiana to begin serving a 25-year sentence for his role in the $11 billion accounting fraud that laid low the nation's second-largest telecommunications company.

Ebbers, 65, arrived at 1:18 p.m. at the low-security facility in Oakdale, according to a spokeswoman for the federal Bureau of Prisons. The facility, which has 1,400 inmates, is more than 200 miles from Ebbers's family's home outside Jackson, Miss. Officials said Ebbers will probably be housed in a double-bunk cell with a steel door.

For the onetime billionaire, prison marks the end of an extraordinary arc, and it left former WorldCom employees and investors wondering whether the weight of the punishment suited the crime. A former milkman and high school basketball coach, Ebbers built a tiny Mississippi long-distance company into a powerhouse and dazzled Wall Street with down-home rhetoric and extraordinary profit margins. During the late 1990s, rival phone companies were excoriated by Wall Street for failing to match WorldCom's dizzying growth.

But it all came crashing down when the company announced in June 2002 that its chief financial officer, Scott D. Sullivan, had been boosting the bottom line by secretly reclassifying the firm's operating expenses as capital expenditures. WorldCom filed for bankruptcy protection the next month, and eventually 20,000 jobs were wiped out, including 4,000 in the Washington region. Hundreds of thousands of investors lost billions of dollars, and the fraud -- along with the 2001 collapse of Enron Corp. -- helped spark a major revision of corporate accountability laws.

Ebbers will spend at least the next 21 years in prison. The federal system does not have parole, but inmates can receive up to 15 percent off their sentences for good behavior. Ebbers is appealing his conviction and sentence to the Supreme Court.

Sullivan, 45, cut a deal with prosecutors and became the chief government witness at Ebbers's 2005 trial. He is serving a five-year sentence at a medium-security facility in Jesup, Ga., and is scheduled to be released in 2010.

The contrast between Ebbers's sentence and that of Sullivan and other high profile white-collar felons, such as former Enron finance chief Andrew S. Fastow -- who was sentenced yesterday to six years in prison -- preoccupied Ebbers's attorney Reid H. Weingarten.

"A very, very sad day," Weingarten wrote in a brief e-mail. "That sullivan gets 5 and now fastow 6 and bernie faces 25 makes me crazy . . . somehow, someway justice will be done here."

Former WorldCom employee Gayle Dennis, 39, has mellowed somewhat in her views toward Ebbers in the years since the fraud was revealed, but she still says he belongs in prison.

"He may not have actively said, 'Book these fraudulent entries,' " she said. "But he created the environment and the culture to encourage that behavior and almost require that behavior."

Dennis, who worked in the company's finance unit from 1993 to 2006, estimates that she lost $50,000 to $100,000 in retirement savings and stock options. And after the fraud was uncovered, she spent a spent a year helping clean up the books, working seven days a week, often until midnight.

"During those times, I was very anti-Bernie as well as anti-Scott Sullivan," she said. "They weren't my favorite people at that time."

In Clinton, Miss., where WorldCom had its headquarters before the scandal and which once proudly claimed to be the smallest city to host a Fortune 500 company, Mayor Rosemary Aultman took a more charitable view.

"I feel for his family," she said, adding that Ebbers's sentence seemed excessive compared with the penalties handed to other top executives convicted of similar crimes.

Ebbers had originally asked to be sent to a prison in Yazoo City, Miss., which is much closer to his family's home in Ridgeland, just north of Jackson. But yesterday, he left his home in the gated community of Bridgewater shortly before 8 a.m. and reported to Oakdale Federal Correctional Institution a little more than five hours later.

In addition to serving a lengthy prison sentence, Ebbers has also been forced to forfeit assets to a restitution fund for WorldCom investors and former employees. Liquidating Ebbers's assets, including a timber farm and a variety of other businesses, has raised $40 million so far, according to lawyers who are preparing to distribute a fund totaling $6.2 billion. That fund also includes money from settlements with WorldCom's bankers, accountants and directors, along with assets forfeited by Sullivan.

A team of class-action lawyers led by John P. "Sean" Coffey has processed 1 million WorldCom claims and found about 700,000 to be valid. The checks are expected to start rolling out in late October or early November, Coffey said. Holders of WorldCom stock will receive only pennies on the dollar for their losses. Bondholders will do far better because WorldCom's underwriters paid large settlements to avoid being on the hook for the company's default. Some bondholders will receive as much as 66 cents on the dollar. WorldCom, which emerged from bankruptcy protection as MCI Inc., has since been bought by Verizon Communications Inc.

There is a second pot of settlement money: the $750 million recovered by the Securities and Exchange Commission as part of its settlement with WorldCom. The distribution plan for those funds has been challenged by a group of WorldCom creditors and is tied up in litigation, SEC spokesman John Nester said.

No matter how those claims are processed, former WorldCom employee Andy Sharp said he felt a sense of relief yesterday as he heard Ebbers was about to start serving his sentence. "I'm less bitter about it . . . and even a little less bitter today now that he's arriving at jail," he said.

Sharp started working for WorldCom subsidiary UUNet Technologies Inc. in 1997 and left in June 2003 because he worried every morning that he would be laid off. His wife, Kristen Stahl-Sharp, who also worked there, was let go in 2002.

Andy Sharp, who now works in business development for a software company in State College, Pa., said he has tried to forget about how much money the two of them lost. He views his tumultuous years with WorldCom more as an experience and less as a catastrophe.

"When things were good, they were good," he said. "It's just too bad it had to end the way it did."

Special correspondent Katherine R. Dougan in Jackson, Miss., contributed to this report.


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