>10 June 2003 Two reports released yesterday have linked former WorldCom CEO Bernie Ebbers to the telecoms company’s record $11 billion fraud for the first time.
The long-awaited results of two parallel investigations into the WorldCom scandal — one ordered by the company’s independent directors, the other by a bankruptcy court — reveal that Ebbers knew the company was issuing misleading information about its performance and that he sold stock shortly before releasing negative financial statements.
“There is clear evidence that Ebbers was aware of certain practices… used to inflate reported revenues,” said one report. It adds: “Ebbers was aware, at a minimum, that WorldCom was meeting revenue expectations through financial gimmickry.”
The reports could prove devastating for the company, now run by former Compaq CEO Michael Capellas, that is seeking to reinvent itself under the MCI name.
The reports paint a picture of a bullying corporate culture that lent itself to the fraud, with dozens of employees knowing of the abuse, but either being paid off or too afraid to speak out.
“The culture was dominated by a strong CEO, who was given virtually unfettered discretion to commit vast amounts of shareholder resources and determine corporate direction without even the slightest scrutiny,” said one report.
These conclusions will raise fresh questions about whether WorldCom/MCI should be allowed to emerge from bankruptcy proceedings. Rivals say the company should be put into Chapter 7 bankruptcy and wound up, arguing that it would be an abuse to allow a fraudulently run company to use Chapter 11 bankruptcy protection in the same way as any other bankrupt company.
At the same time, a coalition of unions, WorldCom competitors and some politicians are already opposing a proposed $500 million settlement with US corporate watchdog the Securities and Exchange Commission.
Neither Ebbers nor former CFO Scott Sullivan was interviewed by the investigators. Sullivan has already been charged with securities fraud and is awaiting trial. He denies the charge. Ebbers has not been charged with any crime.