Ivan Boesky paid $100 million for his crimes, and Michael Milken shelled out more than $1 billion. So the $45 million put up yesterday by...
NEW YORK — Ivan Boesky paid $100 million for his crimes, and Michael Milken shelled out more than $1 billion. So the $45 million put up yesterday by former WorldCom chief executive Bernard Ebbers is no barn-burner, except for this: The deal will wipe him out.
While Boesky and Milken still had fortunes in reserve after their celebrated payments, prosecutors say Ebbers has agreed to forfeit virtually all he has — from his savings and his boat marina to his rice farm.
It’s common for convicted white-collar criminals to pay hefty financial settlements, legal experts say, but it’s rare to see one fork over his last dime.
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Milken and Boesky “were left with ample assets and every prospect of continuing their lives pretty much as before,” said George Newhouse Jr., a partner at Thelen Reid & Priest in Los Angeles. “Bernie is going to be quite a stark contrast.”
Attorneys say Ebbers cut the deal to avoid an effective life sentence after his March 15 conviction for orchestrating WorldCom’s $11 billion accounting fraud.
Federal prosecutors this week sought an 85-year prison term. By surrendering his fortune, the 63-year-old Ebbers hopes to show that he has taken responsibility for his actions and has made every effort to make amends, said Jacob Frenkel, a partner at Shulman Rogers Gandal Pordy & Ecker in Rockville, Md.
“He’s not just throwing himself on the mercy of the court, he’s throwing his wallet, his checkbook and his assets,” Frenkel said. “He’s saying, ‘If you want everything, take it, but don’t make me die in prison.’ “
Ebbers’ attorney, Reid Weingarten, did not return a call seeking comment.
Ebbers will pay $5 million immediately. He will then transfer “substantially all” his other assets — with an estimated value of $25 million to $40 million — into a trust that will distribute the proceeds to shareholders and the company, according to the U.S. attorney’s office in Manhattan, which negotiated the deal.
WorldCom shareholders who filed a class-action lawsuit against Ebbers will get 75 percent of the money. His former company, now known as MCI Inc., will get the rest.
“Mr. Ebbers was the person most responsible for the biggest corporate fraud in history, and it is appropriate that he surrender most of his personal wealth to the stockholders and bondholders he betrayed,” said Alan Hevesi, the New York state comptroller who is the lead plaintiff in the class-action lawsuit.
In previous settlements, Citigroup, J.P. Morgan Chase and other investment banks that sold WorldCom bonds agreed to pay more than $6 billion to settle shareholder claims, and former WorldCom directors have agreed to shell out about $25 million from their own pockets.
Under terms of the latest deal, Ebbers must sell his multimillion-dollar home in Clinton, Miss., and vacate the premises by Oct. 31. Ebbers also must fork over his financial interest in his various businesses: lumber, trucking and grain-elevator companies, a golf course, a hotel and thousands of acres of timberland and other real estate.
Ebbers will retain enough money to pay his lawyers and to provide an unspecified “modest living allowance” for his wife.
Milken, the junk-bond king who pleaded guilty in 1990 to six felonies involving securities violations, was estimated to be worth several hundred million dollars even after paying about $1.1 billion in fines, restitution and lawsuit settlements.
Boesky was estimated to be worth $200 million at the time he paid a $100 million fine to settle insider-trading charges in 1986.
The Ebbers deal still must be approved by U.S. District Judge Barbara Jones, who presided over Ebbers’ trial. Outside experts were split on whether the deal would persuade Jones to give Ebbers a lighter prison term at his July 13 sentencing.
Lawyers said Ebbers knew he likely would have had to turn over much of his holdings. And judges know that executives frequently cut deals before sentencing to make it appear as if they’re remorseful, said Roscoe Howard Jr., a partner at Sheppard, Mullin, Richter & Hampton in Washington.
“The harm’s been done, and judges aren’t fools,” Howard said. “It’s like starting to go to church now.”
However, Newhouse said such deals can elicit softer sentences.
“In my experience, it often has a dramatic impact,” Newhouse said. “He stands before the court humbled, penniless and prostrate.”