Scott D. Sullivan, the former chief financial officer of WorldCom Inc., was indicted Wednesday in Manhattan federal court on securities fraud and conspiracy charges stemming from what many observers view as one of the largest accounting scandals in U.S. history.
Buford Yates, Jr., WorldCom’s director of general accounting, also was indicted.
Sullivan and Yates are each charged with one count of conspiracy to commit securities fraud, one count of securities fraud and five counts of making false filings with the Securities and Exchange Commission. Sullivan and former controller David F. Myers were arrested Aug. 1 on the securities fraud and conspiracy charges.
“The charges filed today reflect our commitment to pursue fraud cases both up and down the corporate ladder,” said James B. Comey, U.S. Attorney for the Southern District of New York, in a statement Wednesday. “We will prosecute the CFOs and controllers who give the orders from the top to commit white collar crimes. But we will also prosecute corporate officials at all levels who knowingly carry out criminal schemes which defraud the investing public.”
Clinton, Miss.-based WorldCom already was buckling under stiff competition, slack broadband demand and a steep debt load when it stunned the world this summer, revealing it had inaccurately posted $3.85 billion in earnings over five quarters by booking expenses as capital expenditures. In August the company said it had improperly recorded an additional $3.3 billion in earnings stretching back to 1999, marking a $7.2 billion accounting scandal.
Some accounting experts say WorldCom is the subject of the largest accounting scandal in U.S. history, a case of outright fraud far simpler than the sophisticated schemes Houston-based Enron Corp. is alleged to have crafted.
Federal authorities say that from October 2000 through June 2002 Sullivan, Yates, Myers and two other executives participated in a scheme to artificially boost its earnings by “falsely reducing the company’s reported expenses, in violation of generally accepted accounting principles.”
Betty L. Vinson, WorldCom’s director of management reporting, and Troy M. Normand, director of legal entity accounting, also are named in the indictment as participating in the scheme.
Sullivan and Yates could face several years in prison if they are convicted of or plead guilty to the felony charges. Experts say most executives charged in white-collar crimes strike plea agreements with prosecutors rather than go to trial. Authorities have not filed any charges against Bernie Ebbers, former CEO of WorldCom.
