WorldCom was, arguably, the biggest documented instance of corporate fraud ($11 billion) leading to the biggest corporate bankruptcy. Its shares, once worth $180 billion, became worthless and its creditors were out $35 billion. Until WorldCom collapsed, the corporate scandals uncovered up to that point were dismissed by the business community and the Bush administration as a "few rotten apples" in an otherwise sound barrel. But after WorldCom, public opinion turned and a wholesale reform of corporate governance became politically inevitable.
That said, few were expecting that former WorldCom chief executive Bernard J. Ebbers, at age 63, would draw a 25-year sentence for his role in masterminding the fraud. Certainly not his stunned lawyers, who vowed a vigorous appeal. And not Ebbers himself, who wept and shook after the penalty was meted. Judge Barbara S. Jones said she realized Ebbers would have to serve out the rest of his days in jail -- in this case a minimum-security prison near his home in Yazoo City, Miss. "But I find a sentence of anything less," she explained, "would not reflect the seriousness of this crime."
In earlier times, it would have been unusual for a white-collar crime, even a serious one, to draw any jail time at all. And even last week there were lawyers and business leaders who said that 25 years was too much. After all, no one lost more money from the collapse of WorldCom's stock than Ebbers himself, whose stake was once worth more than $1 billion. In the end, after giving away nearly $100 million to charitable causes, all Ebbers has to show for his connivance are assets worth between $25 million and $50 million, virtually all of which will go to WorldCom's creditors and shareholders.
But it is clear that judges and prosecutors have concluded that such harshness is required to change the calculus of corporate executives, lawyers, auditors and investment bankers when they choose between revealing financially painful truths or trying to hide them. Timothy J. Rigas of Adelphia Communications drew 20 years and even Andrew S. Fastow will spend 10 years behind bars, despite agreeing to plead guilty and testify against his former Enron colleagues. Still awaiting sentencing: Scott D. Sullivan, WorldCom's former chief financial officer, who was the star witness against Ebbers; and L. Dennis Kozlowski and Mark H. Swartz, convicted on state charges of looting Tyco International.
In terms of its deterrent effect, the stiff Ebbers sentence was welcome news for the Justice Department, which only days before had failed to win a conviction of HealthSouth chief executive Richard M. Scrushy on similar charges. Prosecutors said last week they would not retry Scrushy, leaving it to the Securities and Exchange Commission to pursue a civil case against him.