NEW YORK — The government’s star witness in its fraud case against ex-WorldCom boss Bernard Ebbers told a jury Tuesday that the former chief executive officer repeatedly pressured him to “hit our numbers” when the telecom giant was struggling to generate revenues.
Scott Sullivan, 42, the former finance chief at WorldCom, testified that Ebbers pushed him every quarter from 2000 to 2002 to hit the marks set by Wall Street analysts — regardless of the company’s performance. He also testified that he helped create two sets of accounting books as part of his plans to inflate revenues.
“Most of the adjustments made were to get higher numbers and a higher growth rate,” Sullivan told the jury. “We were trying to meet the expectations of the security analysts.”
Sullivan said he had discussions with Ebbers each time analysts
adjusted their consensus ratings concerning WorldCom’s earnings and revenue estimates, often driving stock prices down.
“He would say ‘We have to hit our numbers,'” Sullivan repeatedly told the jury.
In order to control losses from stagnating revenues and rising operation costs, Sullivan said Ebbers pressured the accounting department to inflate revenues while hiding expenses.
Ebbers, 63, along with Sullivan, has pleaded not guilty to fraud charges that include inflating revenue and hiding $3.8 billion paid in service costs to other telecommunications companies.
Sullivan pleaded guilty to fraud and is now testifying as a government witness. He currently faces up to 25 years in prison.
At one point Assistant U.S. Attorney William Johnson showed jurors an April 26, 2000, e-mail that several top executives received from Ronald Lomenzo, WorldCom’s head of revenue accounting. Lomenzo wrote that in a discussion he had with Ebbers, it was decided the company would now issue “two Monrev (Monthly Revenue) reports.” The move effectively created two sets of books, said Sullivan.
Sullivan also told the jury that company executives “made adjustments [in accounting] that had nothing to do with business” and went on to say: “There was no other choice if we had to meet our numbers. This is what we had to do.”
Sullivan blamed the drop in WorldCom’s fortunes on several factors, most notably the burst of the dot-com bubble and subsequently the burst of telecom bubble in late 1999 and 2000.
“It was abruptly changing and we didn’t expect either,” he said. “We expected the Internet to continue to provide growth.” He later admitted company executives had “taken their eye off the ball” when they became preoccupied with the failed acquisition of Sprint
Throughout the day Sullivan repeatedly discussed the pressure he and other company executives were feeling when they continually failed to meet Wall Street analysts’ expectations.
“The source of that pressure was Bernie and the source of the pressure was the marketplace,” Sullivan said.
Sullivan later told jurors of the mounting “rumblings” coming out of the accounting department over his machinations with the numbers, and said he had to quell the fire by promising to put a halt to the shady practices.
“From here on out it is up to the operations of the company to make the numbers, not the accounting department,” he said he told accounting executives.
Sullivan said the company did not disclose the adjustment to the public or to Wall Street analysts. “We did not talk about these adjustments, and the information was false.”