Bernard J. Ebbers, the swaggering, self-made businessman who vowed to revolutionize the telephone industry, yesterday agreed to give up virtually everything he has built or bought to raise an estimated $45 million to settle the claims of investors hurt when WorldCom Inc. collapsed into bankruptcy three years ago.
Ebbers, 63, will be allowed to keep enough money to cover legal fees and to support his wife in what prosecutors call a "modest" fashion. But the once-brash executive must move out of his Clinton, Miss., mansion within three months so that it can be sold. He also must forfeit interests in 300,000 acres of timberland, a marina and a golf course, and an anticipated federal tax refund of millions of dollars, lawyers said.
It is another step in the precipitous fall of the former high school basketball coach who built a communications powerhouse from scratch and roamed the halls of his 85,000-strong empire in cowboy boots. Ebbers appeared on the cover of business magazines -- the very picture of a lionized chief executive during the Internet boom. One influential technology analyst christened him "King Bernie."
But that was before a massive accounting fraud was uncovered, which Ebbers was convicted in March of engineering.
John P. "Sean" Coffey, a lawyer for lead plaintiffs at the New York comptroller's office, said the former chief executive had agreed to give up "in the neighborhood of 95 percent of his assets."
"Mr. Ebbers was the person most responsible for the biggest corporate fraud in history and it is appropriate that he surrender most of his personal wealth to the stockholders and bondholders he betrayed," New York state Comptroller Alan G. Hevesi said in a statement.
Federal prosecutors in New York have asked a judge to send Ebbers to prison for the rest of his life when he is sentenced July 13 on conspiracy, fraud and false statements charges stemming from an $11 billion accounting fraud at the telecommunications giant. His lawyers are seeking leniency, citing his nearly $100 million in charitable giving and his health problems. They also are likely to argue that he has made restitution by renouncing the vast majority of his assets. Defense lawyers declined to comment yesterday.
Earlier this month, Kristie Ebbers sent a letter to the judge who will sentence her husband. "I grieve when I think of his life in prison, but I grieve more at the thought that he might never come home. . . . I am losing my friend, my partner and my life all in one moment of sentencing," she wrote.
Charles M. Elson, director of the corporate governance center at the University of Delaware, said the financial settlement, coupled with the prospect of many years of prison time, sends a strong message to other executives. The Rigas family, which founded Adelphia Communications Corp., agreed to a similar handover of more than $1 billion in real estate and cable television assets in April, about two months before its patriarch was sentenced to 15 years for fraud.
"It signals there's no profit to be made for improper conduct," Elson said. "And when one loses personal freedom, that's the ultimate price."
Investors will receive about three-quarters of the money obtained from the settlement with Ebbers, which requires the approval of U.S. District Judge Denise L. Cote. Another quarter will go to WordCom's successor corporation, Ashburn-based MCI Inc., which had placed liens on Ebbers's property and business interests to cover $408 million in personal loans that he failed to repay. MCI lawyers project the company's share of yesterday's settlement could be worth about $10 million, in addition to $74 million MCI already realized from selling other Ebbers assets.
The agreement contains unspecified protections for investors in the event Ebbers files for personal bankruptcy, lawyers said. He is to hand over $5 million in cash within a few days of the pact's approval by a judge.
To date, plaintiff lawyers have received 750,000 claims for restitution. Still more could come by the August deadline. A dispersal plan has yet to be approved by the judge. Funds could be released as early the summer of 2006, Coffey said.
Coffey and his legal team agreed not to take any fees stemming from the Ebbers settlement. But they could wind up winning about 51/2 percent of the rest of the money paid by other defendants to settle the claims -- more than $6.1 billion, the largest recovery to date for defrauded investors.
Former WorldCom finance chief Scott D. Sullivan, controller David F. Myers and accounting director Buford T. Yates Jr. are negotiating with plaintiffs to settle their portion of the class-action lawsuit before they are sentenced this summer. All three men pleaded guilty to taking part in the fraud and testified against Ebbers.
Meanwhile, sources at the company said MCI laid off about 600 employees yesterday, including 60 in the Washington area. The cuts spread across all divisions, and more could come in advance of MCI's planned merger with Verizon Communications Inc. That deal is under regulatory review, and the companies have said they expect it to close by the end of the year.
MCI spokesman Peter Lucht declined to comment on the layoffs and restructuring. Speaking about Ebbers, "The settlement is another step forward," he said.