8/8/2019 Ebbers Notes
1/1
Ebbers: Giant Fraud, Simple ConclusionWorldCom's disgraced
founder heard the damning verdict in stoic silence, an ironic end
to one of
the tech boom's loudest and ugliest implosions
Defense attorney Reid H. Weingarten
Ebbers grew up in a family of modest means in Edmonton, Alberta,
where his
father worked as a mechanic. He flunked out of college twice and
worked as a milkman and bouncerbefore ending up in Mississippi,
where he played college basketball. His college career ended after
agroup of thugs mugged him and cut his Achilles tendon.He went on
to coach high school ball, manage a warehouse, and invest in a
small motel. He later joined atelecom reseller as an investor in
1983. When it began to fail, friends convinced him to become CEO.
Heturned the business around and built a global giant.
One of the wildest careers in corporate history ended on Mar.
15, as a federal jury convicted WorldComfounder Bernard Ebbers of
defrauding investors in what prosecutors described as a desperate
attempt toprop up the failing telecom giant. Ebbers simply didn't
know enough about accounting to recognize, letalone orchestrate, an
$11 billion accounting fraud, the largest case of its kind in
history.
Eight days of deliberations ended a few minutes after noon.His
face turned red as he heard the verdict, but he remained otherwise
composed while the forewoman
pronounced him guilty of all nine counts, which include fraud,
conspiracy, and filing false documents with
the Securities & Exchange Commission. Ebbers looked at the
jurors as U.S. District Court Judge Barbara
Jones polled each member of the panel. One row behind him,
Ebbers' wife and daughters cried softly.
"WE'RE DEVASTATED." Ebbers, who is free on bail, slowly walked
across the courtroom to get his coat.
Then he and his wife left the courthouse and past a throng of
reporters to a cab, declining any comment
on the verdict. The Mississippian must return to New York City
for sentencing at 4 p.m. on June 13. He
faces up to 85 years
Members of the jury also left the building without commenting.
Defense attorney Reid H. Weingarten said
he would appeal the decision. "We're devastated. We strongly
disagree with the verdict," said Weingarten,
himself a former federal prosecutor.
GARGANTUAN GROWTH. Indeed, WorldCom was the star of the late
1990s telecom boom. It regularly
posted revenue growth of 20% a year as it gobbled up one company
after another in a string of
acquisitions. For a while, it ranked as the best-performing
Nasdaq stock. Ebbers became a billionaire. And
the company's soaring value enabled it to acquire larger rival
MCI for $47 billion in 1998.
At its peak, WorldCom had revenues of $40 billion a year and
sold telecom services to companies in the
U.S. and financial centers around the world. The company's
fortunes took a dive in 2000, though, as the
Nasdaq plummeted.
The end of the tech boom triggered an economic recession,
followed by a grindingly slow recovery. That
alone would have been enough to bring WorldCom crashing to
earth. But Ebbers' outfit sustained another
blow as regulators in Europe and the U.S. blocked its plan to
acquire rival Sprint (FON ) in a $152 billion
deal.
HUGE LOANS. That was a turning point in WorldCom's dramatic
history. Regulators made it clear the
roll-up was over. While WorldCom had invested a lot of money in
constructing telecom networks,
mergers and acquisitions had been the heart of its business plan
and the key to its success on Wall Street.
Suddenly, it couldn't find a legitimate way to maintain its
identity as the world's largest growth company.
Rather than admit that painful truth, prosecutors argued in the
three-week trial, Ebbers and five other
key executives conspired to cook WorldCom's books and hide
reality from investors and the Securities &
Exchange Commission.
Prosecutors said Ebbers was under enormous personal pressure to
boost the stock. Loath to undermine
investor confidence, he had long refused to sell any shares. But
he wanted to reap the benefits of his
wealth, so he put up his stock as collateral to borrow more than
$400 million, and used the cash to buy a
huge ranch in Canada, a farm in the Southeast, a yachtmaker, and
other companies.
