March 16, 2005
THE OVERVIEW

Ex-Chief of WorldCom Is Found Guilty in $11 Billion Fraud

By KEN BELSON

ernard J. Ebbers, the former chief executive of WorldCom, was found guilty yesterday in federal court of orchestrating a record $11 billion fraud that came to symbolize the telecommunications bubble of the 1990's and the excesses that were uncovered in its aftermath.

The seven women and five men in the jury reached a verdict after deliberating for about 40 hours over eight days. Mr. Ebbers was convicted of securities fraud, conspiracy and seven counts of filing false reports with regulators. Each count carries a sentence of 5 or 10 years.

Mr. Ebbers and WorldCom, through the acquisition of dozens of phone companies, helped to create the rush for telecommunications stocks in the 1990's. They were at the center of a swirl of scandals that cast doubt on corporate accounting methods, the role of Wall Street analysts, and investment bankers who sold stocks and bonds to investors.

WorldCom's phantom growth caused once-mighty telecommunications companies like AT&T to cut prices and slash costs in the crippling race to keep up, from which they never fully recovered. And MCI, which WorldCom acquired with its lofty stock in 1998, was tainted by WorldCom's bankruptcy, was forced to let thousands of workers go and may soon be acquired.

Mr. Ebbers, 63, is the most prominent executive yet to be convicted in a corporate fraud case, but other executives face similar charges. Richard M. Scrushy of HealthSouth, who is also accused of fraud, is on trial now in Birmingham, Ala. Kenneth L. Lay, the former chairman of Enron, is to be tried next year on fraud and other charges, as is Jeffrey K. Skilling, Enron's former chief executive.

In Federal District Court in Manhattan yesterday, Mr. Ebbers sat motionless as the jury foreman, Theodora Evans, read the decision. His hands clasped in front of him, Mr. Ebbers was ashen-faced by the time the drumbeat of nine guilty verdicts was over. His wife, Kristie, seated in the first row behind him, started to weep after the second verdict was read. When Count 5 was read, her daughter, Carley, huddled closer.

The result in Mr. Ebbers's case, legal experts say, may be an indication that juries are not easily persuaded by claims from executives like Mr. Ebbers that they were unaware of securities and accounting crimes committed on their watch.

Mr. Ebbers's testimony that he did not know about the fraud, according to one juror, was unconvincing.

"A lot of his own testimony pretty much did it," said the juror, who insisted on anonymity.

Yesterday's verdict adds a somber postscript to the outsized story of Mr. Ebbers's rise and fall. story. From a modest background and with little schooling in technology or accounting, he turned a tiny reseller of long-distance phone services in Mississippi into an global telecommunications titan. Once worth more than $1 billion, most of it in WorldCom stock, Mr. Ebbers was hailed for his vision and savvy during good times and accused of greed and deceit during bad times.

Despite a deluge of documents and weeks of testimony about intricate accounting procedures, the case essentially came down to Mr. Ebbers's word against that of Scott D. Sullivan, WorldCom's former chief financial officer, who said he was directed by Mr. Ebbers to doctor WorldCom's financial books to hide the company's slowing sales. Mr. Sullivan has pleaded guilty to his role in the fraud and could be sentenced to 25 years in prison.

After the jurors, judge and prosecutors left the courtroom, several dozen reporters waited in near-silence as Mr. Ebbers and his lawyers put on their coats to leave. Mr. Ebbers sipped water and hugged his wife, who patted him on the back.

Mr. Ebbers left the courthouse holding his wife's hand and his stepdaughter's arm. They made no public comments before they hailed a cab and sped away.

Sentencing for Mr. Ebbers is scheduled on June 13. Until then, he is free on bail.

Barbara S. Jones, the judge in the case, will have broad discretion in determining Mr. Ebbers's sentence. According to federal sentencing guidelines, which Judge Jones is supposed to consider, Mr. Ebbers faces 30 years to life in prison. She could, however, lump the terms for each of the counts together as well as consider his age, health and his role in the fraud in making her judgment.

Reid H. Weingarten, Mr. Ebbers's lawyer, said he planned to appeal the verdict, saying the jury should have heard from three former WorldCom executives who had intimate knowledge of the company's accounts and Mr. Ebbers's role in managing them.

The executives refused to testify without immunity; the defense filed three motions for protection for them, but those motions were denied.

"It would have been a profoundly different trial" if the executives were granted immunity and testified, said Mr. Weingarten, who looked stunned after the verdict was read. "From our vantage point, there's not one chance in the world that Bernie Ebbers cooked the books at WorldCom."

The verdict in the eight-week trial is a significant victory for the government, which has stepped up its efforts to prosecute top executives in corporate fraud cases.

"Today's verdict is a triumph of our legal system and the application of our nation's laws against those who breach them," Attorney General Alberto R. Gonzales said in a statement. "We are satisfied the jury saw what we did in this case: that fraud at WorldCom extended from the middle-management levels of this company, all the way to its top executive."

The pursuit of Mr. Ebbers, who was indicted a year ago after five former subordinates pleaded guilty to their role in the fraud, shows the aggressive approach prevailing at the Justice Department and the Securities and Exchange Commission.

The conviction of Mr. Ebbers, who was defended by one of the most highly regarded white-collar criminal lawyers in the country, may lead other executives facing trial to strike deals with the prosecution rather than take their chances with a jury.

Some legal experts say that widespread reporting of corporate fraud and the spate of recent convictions is making it harder for defense lawyers to find sympathetic jurors.

"Since the beginning of the Enron affair in 2002, the government has been in full advance," said Robert Giuffra Jr., a lawyer in Sullivan & Cromwell's criminal defense group. "The victories for the defense have been few and far between, and with each one of these cases, you have to wonder when the defense will win."

The Ebbers case may also affect civil suits brought by shareholders against WorldCom's former bankers and directors. In a trial scheduled to start tomorrow, J. P. Morgan and several other banks that helped underwrite WorldCom's debt will defend themselves in a suit brought by the New York State Common Retirement Fund. If a jury was willing to conclude that Mr. Ebbers knew about the fraud, a jury may find that the bankers should have known also.

"The fact that Bernie Ebbers was found guilty does give the underwriter the possibility of saying we were defrauded, too, but I don't think a jury is going to buy that," said Alan Bromberg, professor of law at Southern Methodist University in Dallas. "The underwriters with all their due diligence capability should have realized that there was fraud and either disclosed it or taken action to prevent it."

Many other WorldCom underwriters, including Citigroup, have already agreed to pay about $4 billion in penalties.

The Ebbers case is another victory for David B. Anders, the assistant United States attorney who won a conviction against Frank P. Quattrone, the former investment banker who was found guilty of obstruction of justice last year.

In the trial, Mr. Anders and his team built a methodical case to show that the former WorldCom chief executive effectively ordered Mr. Sullivan to reclassify rising expenses fraudulently to meet the company's ambitious revenue growth targets. The government argued that Mr. Ebbers, who borrowed hundreds of millions of dollars using his WorldCom stock as collateral, was desperate to reverse the long slide in the company's share price.

Prosecutors called 14 witnesses, but none more important than Mr. Sullivan, who was the only witness to say he spoke directly to Mr. Ebbers about the fraud and was directed to proceed. Mr. Sullivan said he met with Mr. Ebbers alone, and no other witness corroborated his statements.

Mr. Weingarten contended that Mr. Ebbers was in the dark about the fraud, so much so that he continued to buy millions of shares of WorldCom stock even after he resigned as chief executive in April 2002, two months before internal auditors unearthed the fraud.

Mr. Weingarten also argued that Mr. Sullivan's testimony was suspect because he took the stand in hopes of receiving a reduced sentence. The defense also called Bert Roberts, WorldCom's former chairman, who said Mr. Sullivan told him that Mr. Ebbers did not know about fraudulent accounting entries.

The defense took the risky step of putting Mr. Ebbers on the stand to deny that he discussed any element of the fraud with Mr. Sullivan.

But during hours of cross-examination, Mr. Ebbers appeared uncertain and at times seemed to evade even simple questions. He could not recall many facts and encounters mentioned earlier in the trial.

Mr. Ebbers's performance on the stand, it turned out, was what ultimately persuaded the jurors to convict him, said a juror.

Most of the other members of the jury, which included a retired transit authority clerk, a worker from Time Warner Cable and several bank administrators, chose not to speak to reporters after the verdict.

To some of the tens of thousands of WorldCom workers who lost their jobs and savings when the company filed for bankruptcy in 2002, the verdict might bring some satisfaction.

"The verdict represents justice, but not restitution," said Stephen Vivien, a WorldCom employee from San Carlos, Calif., who lost $250,000 in his 401(k) account when the company went bankrupt. "Great, he's going up the river. But the way pensions are treated in America, employees and their pensions are still vulnerable."

Jonathan Glater, Gretchen Morgenson and Colin Moynihan contributed reporting for this article.