Reports link ex-WorldCom CEO with fraud

Two recent reports have found that Bernard Ebbers, the man credited with building WorldCom also had a significant hand in its...

Two recent reports have found that Bernard Ebbers,  the man credited with building WorldCom, also had a significant hand in its demise.

Following investigations into the multibillion-dollar accounting scandal at the giant telecommunications carrier, the fraud, revealed last year, was a result of the way the former chief executive officer ran the company.

Although many others at WorldCom took part in the fraud, Ebbers "was the source of the culture, as well as much of the pressure, that gave birth to this fraud", according to the report by a committee led by William McLucas, a former US Securities and Exchange Commission and law firm Wilmer, Cutler & Pickering.

Shortly after the fraud was revealed, WorldCom sought bankruptcy protection and began a series of changes to remake itself, including appointing a new board and chief executive officer. Though its legal name is still WorldCom, the company has adopted the name MCI and moved its headquarters.

A second report, ordered by the bankruptcy court overseeing the WorldCom case, detailed "deceit, deficiencies and a disregard for the basic principles of corporate governance" at WorldCom. Many of the issues raised directly related to the way Ebbers ran the company, especially the many acquisitions he led to create one of the largest telecommunications service providers in the US.

Ebbers resigned from WorldCom in April last year, two months before the company said it would restate its results for 2001 and the first half of 2002 by a total of $3.85bn (£2.3bn).

Less than one month later, WorldCom filed for bankruptcy protection and subsequently said it found another $3.83bn in accounting irregularities between 1999 and April 2002.

Ebbers' main strategy for building up WorldCom in the 1990s was through acquisitions, which the company paid for in WorldCom shares.

To keep the share price high, WorldCom used "financial gimmickry" to meet market expectations, according to the report.

There is "clear evidence" that Ebbers was aware of practices to inflate revenue.

The reports could lead to criminal charges against Ebbers. Scott Sullivan, the former chief financial officer of WorldCom, was indicted in August by a federal grand jury on charges of securities fraud, conspiracy to commit securities fraud and making false filings with the SEC.

Buford Yates, WorldCom's former director of general accounting, was indicted on the same charges.

Since discovering the fraud, which now tops $11bn (£6.7bn). WorldCom hopes to emerge from bankruptcy protection later this year.

Joris Evers writes for IDG News Service

Read more on IT legislation and regulation

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

SearchCIO

SearchSecurity

SearchNetworking

SearchDataCenter

SearchDataManagement

Close