The former controller of WorldCom testified on Thursday that former CEO Bernard Ebbers apologised to him in 2000 after company accountants were forced to cover up more than $800-million in expenses.
David Myers, testifying at Ebbers’ fraud trial, said he encountered the CEO in a hallway on an afternoon in October 2000.
He paraphrased Ebbers as saying: ”I’m sorry you were asked to do what you were asked to do. It’s something that you should not have been put in that position to do.”
He said Ebbers promised him ”that we would never have to do that again”.
Myers testified that Scott Sullivan, the company’s chief financial officer, had ordered him to cover up $800-million in expenses for the third quarter of 2000.
Myers described a meticulous effort by company accountants to falsify the books.
Myers, who has already pleaded guilty to fraud, told jurors the accountants made false entries repeatedly until they satisfied Sullivan.
He said the fraud began in late 2000, when so-called line costs — the fees WorldCom paid other telephone companies to lease their lines — soared out of control, putting WorldCom in danger of missing Wall Street earnings estimates.
”He refused to accept the fact that the numbers were what they were,” Myers testified, referring to Sullivan.
”He told me that obviously we had made a drastic mistake … [and] take them back and fix them.”
Still, in his morning testimony on Thursday, Myers did not implicate Ebbers in WorldCom’s huge accounting fraud from 2000 to 2002. Ebbers is accused of orchestrating the criminal conspiracy.
Myers did say he remembered a conversation with Ebbers in 1995 in which the chief executive told him WorldCom ”would do everything within its power to make its numbers,” referring to Wall Street expectations.
Myers, a prosecution witness, walked jurors through a series of complex accounting statements that reflected false entries the accountants made to improve the company’s financial appearance.
Many of them included Myers’ handwriting, with notations, for example, of how the accountants dropped $111-million from line-cost expenses or moved $5-million in costs to another segment of the company.
Myers said the quarterly adjustments started in the tens of millions of dollars, and grew by 2002 to roughly $750-million.
The former controller pleaded guilty to fraud and conspiracy in 2002, agreeing to cooperate with the government in hopes of winning a lighter penalty when he is eventually sentenced.
Investigators eventually uncovered $11-billion in accounting fraud at WorldCom, which collapsed in 2002 in the largest bankruptcy in United States history. It has since re-emerged under the name MCI.
Opening statements and the first two days of testimony have already set up a credibility contest between Ebbers and Sullivan: Was the fraud directed by the boss or the finance maven? Sullivan has pleaded guilty and is expected to testify against
his former boss as the star prosecution witness.
Earlier on Wednesday, defence lawyers introduced two audio tapes of WorldCom conference calls with stock analysts in which Ebbers defers on questions of accounting and lets Sullivan handle the queries.
Two similar tapes were played for jurors on Wednesday, including one in which Ebbers sheepishly tells analysts, ”Remember, I’m a PE graduate, not an economist.”
The defence has portrayed Ebbers as uncomfortable with the details of the company’s accounting procedures, preferring instead to represent the vision and spirit behind WorldCom.
Ebbers is charged with fraud, conspiracy and making false filings with the Securities and Exchange Commission. Those charges carry a top penalty of 85 years in prison. – Sapa-AP