Ex-WorldCom Execs Busted on Fraud Charges

Aug. 1, 2002 -- Two former executives of bankrupt telecommunications giant WorldCom were arrested today for their alleged role in the accounting scandal that led to the company's downfall.

Former Chief Financial Officer Scott Sullivan and former Controller David Myers surrendered to federal authorities earlier today. Each now faces seven counts, including securities fraud, conspiracy and filing false statements with the Securities and Exchange Commission.

The government's complaint alleges that Myers, at Sullivan's behest, directed employees of WorldCom's accounting department to transfer hundreds of millions in dollars in line costs expenses as long-term capital expenses, a practice that made the company's financial picture look rosier than it really was.

The two were escorted, grim-faced and handcuffed, from a federal court building in Manhattan this morning. They were later released after a judge in the case set bail at $10 million for Sullivan and $2 million for Myers.

Sullivan's bail will be secured with a $5 million lien on his $15 million Boca Raton, Fla., home, while Myers' bail will be secured with two pieces of property he owns in Mississippi.

"We're preparing for trial, and expect that there will be an indictment," said Sullivan's attorney, Irv Nathan. A call to Myers' attorney was not immediately returned.

In Washington, U.S. Attorney General John Ashcroft said the arrests send a clear signal to executives who perpetrate corporate crime.

"Corrupt corporate executives are no better than common thieves when they betray their employees and steal from their investors," said Ashcroft.

Questions still remain over the fate of the firm's former chief executive, Bernie Ebbers, who has been under scrutiny after resigning in April amid questions about more than $400 million he received in loans from the company. Ebbers was not charged but is still said to be under investigation.

Cooking the Books

WorldCom disclosed at the end of June that it had inaccurately accounted for almost $4 billion in routine operating expenses, inflating its profits for five quarters. The company said it had terminated Sullivan and accepted Myers' resignation at the same time it revealed the accounting irregularities.

Shortly after WorldCom's disclosure, the SEC filed fraud charges against the company. WorldCom filed for Chapter 11 bankruptcy protection at the end of July — the largest bankruptcy filing in U.S. history.

Chapter 11 bankruptcy allows the company to continue operations while trying to negotiate payments with its creditors. The company also laid off 17,000 workers last month.

WorldCom, which purchased long-distance provider MCI in 1997, serves 20 million customers nationwide and is the second-largest long-distance carrier in the country, as well as the backbone of the Internet. Various experts have assured that they expect no immediate disruption in those services.

Payback for Corporate Fraud

Sullivan and Myers are just the latest executives to be arrested as a result of a wave of corporate scandals.

Last week, John Rigas, the founder of cable company Adelphia, and two of his sons were charged with conspiracy for allegedly bilking the firm of millions of dollars for their personal gain.

Former ImClone CEO Sam Waksal Sam Waksal was arrested on June 12 on charges of insider trading for allegedly trying to sell his stock and tipping off family members before the Food and Drug Administration rejected the company's application for a cancer drug. Famed lifestyle maven Martha Stewart has also been under scrutiny in that case.

And before that, former Tyco CEO Dennis Kozlowski was indicted on charges that he failed to pay taxes on $13 million worth of Monets and Renoirs he purchased to decorate the 12-room New York City luxury apartment he allegedly bought with company funds.

But as the rich and powerful begin to pay for their alleged misdeeds, Democrats attempted to use the circumstances for political gain with a Capitol Hill news conference today to talk about what can be done to protect the retirement and pensions of the average American.

Former WorldCom employee Osman Guven, 57, told the gathering he is now out of work with no prospects for a job. "I worked 31 years. I didn't make it. And where did I go wrong?" he said, sobbing. "What did I do wrong?"

ABCNEWS' Jim Hickey, Tim Scheld, Ramona Schindelheim and Justin Anderson contributed to this report.