Accounting & Tax

Ebbers’ Conviction: Look to the CFO

Former WorldCom chief financial officer Scott Sullivan was the only witness to implicate Bernard Ebbers directly.
Stephen TaubMarch 17, 2005

When Bernard Ebbers finally sits in his prison cell, perhaps for the next decade or two, the thoughts of WorldCom’s former chief executive officer may well turn to the one person he can thank for his situation — besides himself, of course.

That individual is Scott Sullivan, his erstwhile buddy and WorldCom’s former chief financial officer.

Like another ex-CEO currently on trial — former HealthSouth chairman and chief executive Richard Scrushy — Ebbers claimed that he left the befuddling numbers to his finance team. Scrushy laid the blame on his former CFOs, too, in an October 2003 interview with “60 Minutes” — a month before he was indicted on 85 counts.

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Scrushy is currently on trial in U.S. District Court in Birmingham, Alabama.

Sullivan pleaded guilty in March 2004 to conspiracy, securities fraud, and filing false documents with the Securities and Exchange Commission. He faces a reduced sentence of up to 25 years in prison after agreeing to cooperate in the case against his former boss.

In poised, convincing testimony, Sullivan explained how Ebbers — a former basketball coach, milkman, and bouncer — was also intimately involved in the finances and cover-up of the $11 billion accounting fraud that brought down the company.

Essentially, Sullivan testified that Ebbers directed him to hide expenses and overstate revenue to meet Wall Street expectations, according to Bloomberg. The wire service noted that Sullivan was the only witness to implicate Ebbers directly, and that jurors obviously believed Sullivan couldn’t have committed the fraud without his boss’ knowledge, given the size and pervasiveness of the scheme.

Specifically, Sullivan said Ebbers ordered him to “hit the numbers,” which he interpreted as doing whatever he could to hide $3.8 billion in fees paid to other phone companies to use their lines, according to Bloomberg. And when Sullivan began urging Ebbers to warn investors that growth was slowing down, the former CEO reportedly refused, reminding his finance chief, “We have to stick with our guidance.”

The Wall Street Journal pointed out, however, that Sullivan admitted during cross-examination that he had lied many times to WorldCom’s board as well as to his friends. As a result, the paper noted, at least four jurors admitted that they didn’t solely rely on Sullivan’s testimony to convict Ebbers.

“The most difficult thing was to find the evidence that supported the conviction without relying on Scott Sullivan,” Aran Nulty, an elementary school teacher and juror No. 10, told the paper. “The testimony of Mr. Sullivan was not enough by itself. A lot of us struggled with his testimony. His testimony did not have enough credibility for us to come to a conviction based on what he said.”

Indeed, jurors deliberated for eight days before reaching their verdict.