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More Charges Expected in Probe of WorldCom

Telecom: As two former executives plead not guilty to securities fraud, prosecutors say their case is expanding.

September 05, 2002|JUBE SHIVER Jr. | TIMES STAFF WRITER

WASHINGTON — Widening their probe of the largest accounting scandal in U.S. history, federal prosecutors said Wednesday that they plan to file new charges and indict additional defendants in their investigation of telecommunications giant WorldCom Inc.

Assistant U.S. Atty. David B. Anders told a federal judge in New York on Wednesday that he intends to expand on a criminal indictment unveiled last week that named five former WorldCom executives as masterminds of an alleged accounting scheme that inflated WorldCom's profit by billions of dollars.

Anders made his remarks at the arraignment of former WorldCom Chief Financial Officer Scott D. Sullivan and accounting executive Buford Yates Jr., who were indicted last week on charges that they directed employees to hide $3.9 billion in expenses at WorldCom, which owns MCI, the nation's No. 2 long-distance telephone company. Sullivan and Yates both pleaded not guilty to securities fraud charges.

For weeks, prosecutors have threatened potential defendants in the WorldCom case with jail time to get them to cooperate with the government in bringing additional charges against more senior company executives, including former WorldCom Chief Executive Bernard J. Ebbers.

The government is said to be weighing several new charges against Sullivan and Yates and possibly other defendants. The charges include insider trading on nonpublic information, obstruction of justice, perjury and filing false financial reports.

In last week's indictment, two former WorldCom executives, Betty Vinson and Troy Normand, were named as unindicted co-conspirators. They are expected to plead guilty and cooperate with prosecutors. Former WorldCom comptroller David F. Myers is negotiating a plea agreement in connection with the accounting probe.

Noting that Anders and other WorldCom prosecutors have faced off in court against drug lords and organized crime groups, some experts say racketeering charges against some former WorldCom executives also are a possibility. To prove racketeering, prosecutors would have to show that WorldCom executives had engaged in a criminal enterprise to shortchange investors and employees.

The threat of additional charges ups the ante in a criminal case that could have significant repercussions for corporate bookkeeping and for Wall Street, where negative investor reaction to a wave of financial scandals has pummeled stock prices and weakened the nation's economy.

"WorldCom is waging a fight now for the hearts and minds of clients, employees and investors," said Blair Levin, a telecommunications analyst at the Washington office of Legg Mason Wood Walker Inc. "There's a crime here that really devastated the whole [telecom] sector."

However, some experts saw little indication Wednesday that WorldCom's former chief executive might soon face criminal charges, along with some of his subordinates.

Unlike the case involving Enron Corp., in which the government clearly telegraphed its intention to go after Chief Financial Officer Andrew S. Fastow after reaching a plea agreement with former Fastow subordinate Michael J. Kopper, experts say there has been little or no mention of Ebbers in court documents filed by prosecutors.

"While there may be widespread hope and expectation by those following the WorldCom investigation that Ebbers will be charged, such a case--if one will ever be brought--still appears to be far off," said Jacob Frenkel, a former federal prosecutor and lawyer for the Securities and Exchange Commission. He added that "if there is no case to be made against Bernie Ebbers, the big fish to fry in WorldCom becomes Scott Sullivan."

Neither Sullivan, who remained free on $10-million bail after his arraignment Wednesday, nor his attorney, Irvin B. Nathan, could be reached for comment. Nathan has said that his client was a victim of "a rush to judgment" and that his client looks forward to having his day in court.

Yates' attorney, David Schertler, could not be reached for comment.

If convicted on the conspiracy count, Yates and Sullivan face a maximum of five years in prison and a $250,000 fine. The securities fraud and false statement counts each carry a maximum sentence of 10 years in prison and a $1-million fine.

In court Wednesday, Schertler said he will seek to have his client's trial moved out of New York.

Sources close to the government said WorldCom defendants faced a hostile reception in New York, where a jury probably would include some pensioners, investors or telecom employees angry over the fallout from the WorldCom accounting scandal. If Yates' request is granted, it could lead to a separate trial for the former WorldCom executive, who was released Wednesday on a $500,000 bond.

In an appearance before a congressional panel in July that was attended by Justice Department officials investigating WorldCom, Ebbers maintained his innocence, saying: "No one will conclude that I engaged in any criminal or fraudulent conduct during my tenure at WorldCom."

The accounting scheme at the heart of the WorldCom case allowed the company to claim billions of dollars in profit over the last two fiscal years.

The scheme unraveled in June, when WorldCom publicly acknowledged the accounting problems and was forced to restate its earnings. The company subsequently sought Chapter 11 protection on July 21 in the biggest corporate bankruptcy filing in U.S. history.

U.S. District Judge Barbara Jones scheduled a Dec. 9 pretrial hearing for Sullivan and Yates.

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