Former WorldCom Chief Financial Officer Scott D. Sullivan was indicted on charges he orchestrated a multibillion dollar accounting fraud, as the government signaled three other officials were close to pleading guilty.
Sullivan, 40, was also accused of making false filings to the US Securities and Exchange Commission in a plot to deceive investors and inflate earnings that led to the largest US bankruptcy in history. The company has admitted hiding US$7.2 billion since 1999. Also named in the indictment was Buford Yates Jr., WorldCom's former director of general accounting.
"Sullivan is looking at decades behind bars if he's prosecuted to the full extent," said Anthony Sabino, a St. John's University law professor.
PHOTO: AFP
Federal prosecutors secured the indictment about two months after WorldCom Inc revealed its accounting misstatements, as the Bush administration sought to demonstrate its resolve to fight corporate fraud in the wake of Enron Corp's collapse last year. WorldCom, parent of the MCI long-distance phone service, at one time carried half the traffic on the Internet.
A US grand jury in Manhattan accused Sullivan, Yates and three unindicted co-conspirators of engaging in "an illegal scheme to inflate artificially WorldCom's publicly reported earnings by falsely and fraudulently reducing reported line cost expenses."
Sullivan was arrested Aug. 1 along with WorldCom's former controller David Myers, 44. Myers, who has been negotiating with prosecutors for a deal that may help win him leniency in exchange for his cooperation, was named an unindicted co-conspirator today along with two other WorldCom officials, Betty Vinson and Troy Normand.
The government said Myers, Vinson and Normand have waived their right to be indicted and will respond to what is known as a criminal information, an alternative to an indictment that indicates the three are close to reaching plea bargains with prosecutors.
The indictment "is a sign that negotiations between Sullivan and the government broke down," Sabino said. "He may have been trying to get out of jail time and the government said, `Forget it. The American public won't tolerate this.'"
Former WorldCom Chief Executive Officer Bernard Ebbers, who resigned in April while owing the company US$408 million in loans, is also under investigation. In a telephone interview this morning, Ebbers said he wouldn't comment on whether he expected to be indicted.
Sabino said Sullivan might try to implicate his old boss as part of a plea bargain with prosecutors. ``With all due respect to Mr. Ebbers, this is not good news for him,'' Sabino said.
Sullivan's lawyer, Irvin Nathan, and David Schertler, an attorney for Yates, did not immediately return phone calls yesterday.
US Attorney General John Ashcroft said the indictment of Sullivan and Yates is evidence the government is "committed to ensuring that corporate executives never profit by victimizing their own employees and investors."
Last week, Michael J. Kopper, who managed partnerships for Enron Corp's former chief financial officer, Andrew Fastow, pleaded guilty in Houston to fraud and money laundering conspiracy. Kopper, the first Enron official to be criminally charged in the energy trader's downfall, implicated Fastow in a scheme to defraud investors.
In Manhattan, US Attorney James Comey said his office will go after any corporate official who swindles investors. "We will prosecute the CFO's and Controllers who give the orders," he said, and subordinates "who knowingly carry out criminal schemes which defraud the investing public."
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