RealTime IT News

Former WorldCom Exec Details Accounting Fraud

NEW YORK -- Former WorldCom finance boss Scott Sullivan, the government's key witness in its fraud trial against former boss Bernard Ebbers, told a jury Monday that he cooked company books in order to inflate earnings and make the telecom appear profitable.

"I falsified financial statements of the company, made adjustments to revenue for the purpose of meeting analyst expectations," Sullivan said on the stand.

Sullivan was in federal court to testify against Ebbers, the former WorldCom Chief Executive Officer and President. Ebbers is on trial for securities fraud, conspiracy and filing false reports with the Securities and Exchange Commission. He faces a maximum of 25 years.

The government claims Ebbers instructed Sullivan to adjust the Mississippi-based company's accounting numbers over a two year period in order to keep receiving positive reports from Wall Street analysts.

"We didn't disclose the adjustments," Sullivan said. "We didn't talk about the adjustments, and the information was false."

After admitting he adjusted revenue for the purpose of meeting Wall Street expectations, Sullivan said Ebbers was one of several executives that helped him do it.

Sullivan, 42, is the first witness to implicate Ebbers in the scandal that cost WorldCom $11 billion and drove it to bankruptcy in 2002. It has since been renamed MCI.

Defense attorneys for Ebbers have claimed that their client was hoodwinked by Sullivan into believing the company's finances were in good shape.

For his part in the shady dealings, Sullivan has already pleaded guilty to fraud and is now testifying on behalf of the government. He also currently faces up to 25 years in prison.

In an effort to dispel suggestions Ebbers was an unwitting dupe in the accounting scam, Sullivan described Ebbers, 63, as a gifted businessman who guided the company from a small regional player in the telecommunications game to a powerful multinational.

"He's got a hands-on grasp of financial information," Sullivan said, but he also noted that his former boss's tendency to micromanage reached even the lowest levels of business. On several occasions during high level staff meetings Ebbers would discuss such seemingly mundane issues as cutting back on coffee filters for employees.

He also accused Ebbers of being prone to mood swings depending on the day of the week and said he could be intimidating at times.

Sullivan also told jurors about his own cocaine and marijuana use while at WorldCom. He said he used both drugs maybe four to five times a year during his tenure at the company.

Sullivan plead guilty to fraud last year and is expected to tie the government's case against Ebbers when he continues testifying.

The trial is expected to continue Tuesday with Sullivan scheduled to be back on the stand answering questions from prosecutors. He could be cross-examined by defense lawyers as early as Tuesday morning.