Former WorldCom Inc. executives Scott Sullivan and David Myers are "no better than common thieves" and "will meet the judgment they fear and the punishment they deserve," U.S. Attorney General John Ashcroft said at a press conference Thursday afternoon soon after the two were arraigned in a Manhattan federal court.
They each face up to 65 years in prison if convicted on charges that they conspired to commit securities fraud and made false filings with the U.S. Securities and Exchange Commission (SEC), Ashcroft said at the press conference in Washington, D.C., where he and other federal law enforcement officials focused as much on applauding their own investigative efforts as they did providing additional details about the WorldCom case.
Sullivan, WorldCom's former chief financial officer, and Myers, the former controller, appeared in the U.S. District Court for the Southern District of New York Thursday afternoon after surrendering to the U.S. Federal Bureau of Investigation earlier in the day. A federal judge set bail for Sullivan at US$10 million and $2 million for Myers. A Sept. 3 hearing was scheduled in the case. Sullivan posted bail using a lien on property in Boca Raton, Florida, and Myers also was released on bail, according to published reports.
Sullivan and Myers are accused of hiding $3.8 billion in expenses to make it appear that WorldCom was earning a profit instead of incurring net losses over a 15-month period involving four quarter financial reports in 2001 and the first quarterly report for 2002.
Along with others who are not named in the criminal complaint against them, Sullivan and Myers "systematically flouted the rules of accounting and lied outright to investors to perpetuate the image that WorldCom was succeeding," said Assistant Attorney General Larry Thompson, who characterized the abuses of the rules as "egregious" during the press conference.
The former executives knew that the company's earnings were being looked at "so the defendants, Myers and Sullivan, decided to work backwards," Thompson said, altering the books for previous financial quarters and making WorldCom look healthy "by disguising burgeoning expenses to the tune of $3.8 billion, thus turning mounting losses into profit."
Sullivan and Myers have been charged with two counts of conspiracy to commit securities fraud and five counts of making false filings with the SEC, according to a criminal complaint unsealed in federal court Thursday. The false filings include WorldCom's four quarterly financial reports in 2001 and its first quarterly report for 2002, according to the complaint, which also charges the pair with making false statements to auditors and keeping false books and records.
The criminal charges are politically motivated and rushed, Sullivan's attorney, Irvin B. Nathan, said in a written statement.
"We very much regret the rush to judgment and the part that politics has obviously played in bringing with great fanfare criminal charges with less than a month's reflection on WorldCom's complex accounting issues," the statement said. "As President Bush acknowledged recently, accounting procedures are not black and white; there are various shades of gray. There is substantial room for disagreement on accounting issues, including cost allocation. We will vigorously contest the criminal charges brought against Mr. Sullivan, who looks forward to his day in court, hopefully without the unfair taint of the current political climate."
The SEC already filed civil charges against WorldCom. The federal investigation is still continuing against the company, which is based in Clinton, Mississippi, officials said Thursday.
WorldCom revealed the alleged accounting irregularities in an announcement in late June. The company filed the largest Chapter 11 bankruptcy in U.S. history last month.
(Stacy Cowley in New York and Scarlet Pruitt in Boston contributed to this report.)