The former WorldCom finance chief testified yesterday he worked with Chief Executive Bernard Ebbers to falsify the company's books, describing...
NEW YORK — The former WorldCom finance chief testified yesterday he worked with Chief Executive Bernard Ebbers to falsify the company’s books, describing his ex-boss as a micromanager fanatical about controlling expenses.
The testimony from Scott Sullivan, the government’s star witness, was the first to directly link Ebbers to the $11 billion accounting fraud that sank WorldCom.
Sullivan, who has pleaded guilty to fraud, said under questioning from a federal prosecutor that he had cooked the books to bring expenses and revenues in line with Wall Street estimates.
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Asked who was involved with the crime, Sullivan listed “Bernie” first, along with four other former WorldCom executives who have pleaded guilty.
“We did not disclose these adjustments,” Sullivan said. “We did not talk about these adjustments, and the information was false.”
Sullivan described Ebbers as a hands-on manager with a “good grasp of accounting concepts” and a keen interest in finances that far exceeded CEOs and CFOs of other companies Sullivan encountered in his years at WorldCom.
Ebbers’ office at company headquarters in Mississippi was littered with stacks of revenue papers, printed specially for Ebbers on green-bar papers, on which the CEO would scribble and highlight, Sullivan said.
Sullivan is the linchpin of the case against Ebbers, who is accused in a federal indictment of fraud, conspiracy and false regulatory filings — charges that carry up to 85 years in prison.
The description of Ebbers as a manager is key, because the prosecution and defense differ sharply on how involved Ebbers was in company finances. The defense has portrayed him as a visionary who left the numbers to Sullivan.
Sullivan pleaded guilty to fraud last year and agreed to testify against Ebbers, hoping that might win him a lighter prison sentence.
In addition, Sullivan must eventually forfeit proceeds from the sale of a house he is building in Boca Raton, Fla., — an estate expected to fetch $10 million.
In the first 10 minutes of his testimony in Manhattan federal court, Sullivan admitted having used marijuana and cocaine repeatedly during the years he worked at WorldCom, although never during work hours.
He also admitted a 1984 drunken-driving citation and said he did not disclose it or the drug use during a Defense Department clearing process he underwent in 2000 or 2001.
The prosecution questions appeared to be designed to head off similar questions from the defense, which the judge has said will also be allowed to question Sullivan about marital infidelity.
Ebbers in 1992 hired Sullivan, who quickly became chief financial officer of WorldCom. During that decade, WorldCom was rapidly swallowing up ever-larger companies and growing into a telecommunications titan.
Sullivan described a positive relationship between the two that included trips to the Super Bowl and college basketball’s Final Four, and even joint dinners with their wives on Valentine’s Day.
But Sullivan said the relationship began to sour in 2000, when WorldCom’s planned merger with Sprint was blocked by the Justice Department on antitrust grounds.
“It was just very tough,” Sullivan said. “There was a lot of stress.”
Sullivan described a boss obsessed with holding down expenses, sometimes insisting that executives drive the seven-hour trip from Atlanta to Jackson, Miss., rather than fly.
And Sullivan said Ebbers once told him, “There’s more coffee filters than coffee bags, and that means employees are taking coffee home.” Sullivan said Ebbers had the coffee service canceled.
Another witness, Brady Connor, who was an internal revenue analyst for WorldCom, went even further in his testimony describing Ebbers’ attention to minor expenses.
He said Ebbers once complained at a meeting about coffee filters, too-long smoking breaks and suspiciously long walks around a large pond employees were taking, walks that Ebbers called a drain on productivity.
At the same meeting, Connor said, Ebbers claimed he was having a security guard at a WorldCom office near Washington, D.C., “mainly fill up the bottled-water machines with tap water, and the employees didn’t know the difference.”
The story prompted quiet laughter in the courtroom and what appeared to be small smiles from the judge, the lead federal prosecutor and Ebbers himself.