Former WorldCom CEO Bernard Ebbers took the stand yesterday accused of conspiracy and fraud over the false reporting of $11 billion in revenues that saw the telco collapse.
The former WorldCom chief financial officer, Scott Sullivan, has pleaded guilty and is the key witness against Ebbers.
WorldCom, now operating under the name MCI, filed for bankruptcy in July 2002 after disclosing that employees had falsified records to conceal losses and inflate earnings. MCI emerged from bankruptcy last April after agreeing to a $750 million settlement for accounting irregularities with the US Securities and Exchange Commission (SEC). Ebbers is accused of being part of a team that knowingly inflated the price of WorldCom's stock.
The company is now the subject of an acquisition battle between Verizon, with whom it announced a $6.7 billion deal two weeks ago, and Qwest, which last week offered a counterbid.
During morning testimony, the defence team took Ebbers through his modest beginnings as a basketball coach. He had Ebbers describe how he got into the telecom business initially as a way of generating capital for a string of motels. He repeatedly asked Ebbers whether he had expertise in finance or accounting. "I know what I don't know, and to this day I don't know technology and I didn't know accounting and finance," Ebbers said. "I always thought that I was a pretty good coach and supervising sales and marketing people is kind of like coaching."
Weingarten also asked Ebbers repeatedly whether Sullivan had ever told him about improper accounting or revenue-booking entries. "He never told me he made any accounting entries ever that were not right," Ebbers said. "If he had we wouldn't be here today."
Ebbers appeared calm, occasionally smiling and making eye contact with the jury. However, he can expect to face tough cross examination from prosecutors who will most likely drill him on details of his actions and attempt to show inconsistencies in his statements.
"Putting Ebbers on the stand is risky, just as putting any defendant on the stand is risky, no matter how well prepared he is," said Norman Berle, a criminal lawyer who teaches business and ethics at the Fordham University Graduate School of Business. "The gamble with white collar crime particularly is that the defendants are not used to being cross-examined, and they're not used to the tone of a cross examination, which can be very confrontational - they're used to giving orders, not taking them," Berle said.
The prosecution must show that Ebbers had knowledge of the scheme as well as criminal intent. Sullivan is the only witness who said he discussed the WorldCom fraud directly with Ebbers. But now that Ebbers is taking the stand, the case may come down to whether the jury believes Ebbers or Sullivan.
Ebbers faces one count of conspiracy to commit securities fraud, one count of securities fraud and seven counts of false filing with the SEC. The conspiracy charge carries a maximum prison sentence of five years and a fine of either $250,000 or twice the gross gain or loss resulting from the offense, whichever amount is larger.
The fraud count carries a maximum of 10 years in prison and a fine of $1 million or twice the gross gain or loss, whichever is bigger. The other counts have a maximum prison sentence of 10 years.
The case continues.