NEW YORK - Former WorldCom Chief Executive Officer Bernard Ebbers Monday took the stand in a packed New York courtroom to defend himself against charges of conspiracy and fraud in connection with $11 billion of accounting misstatements that led to the bankruptcy of the telecommunications giant he built.
The former WorldCom chief financial officer, Scott Sullivan, has pleaded guilty in the case and is the key witness against Ebbers.
WorldCom, now operating under the name MCI, filed for bankruptcy in July 2002 after disclosing that employees had falsified records to conceal losses and inflate earnings. MCI emerged from bankruptcy last April after agreeing to a $750 million settlement for accounting irregularities with the U.S. Securities and Exchange Commission (SEC).
The company is now the subject of an acquisition battle between Verizon Communications, with which it announced a $6.7 billion deal two weeks ago, and Qwest Communications, which last week offered a counterbid.
The indictment against Ebbers, filed in U.S. District Court for the Southern District of New York, charges that he participated from September 2000 through June 2002 in a scheme to inflate the price of WorldCom's stock.
During morning testimony, the defense team's lead counsel Reid Weingarten took Ebbers through his modest beginnings as a basketball coach. He had Ebbers describe how he got into the telecom business initially as a way of generating capital for a string of motels. He repeatedly asked Ebbers whether he had expertise in finance or accounting. "I know what I don't know, and to this day I don't know technology and I didn't know accounting and finance," Ebbers said. "I always thought that I was a pretty good coach and supervising sales and marketing people is kind of like coaching."
The WorldCom management structure, Ebbers said, was divided into three parts: technology; sales and marketing; and finance and accounting. Several times during the morning, Ebbers said that because of his background and lack of technical training, he focused on sales and marketing.
Weingarten also asked Ebbers repeatedly whether Sullivan had ever told him about improper accounting or revenue-booking entries. Weingarten singled out types of improper entries that, earlier in the trial, Sullivan said he had mentioned to Ebbers.
Ebbers denied, multiple times, that Sullivan had discussed the entries with him.
"He never told me he made any accounting entries ever that were not right," Ebbers said. "If he had we wouldn't be here today."
Ebbers appeared calm, occasionally smiling and making eye contact with the jury when Weingarten asked him to explain aspects of WorldCom's business.
Ebbers, however, can expect to face tough cross examination from prosecutors who will most likely drill him on details of his actions and attempt to show inconsistencies in his statements.
"Putting Ebbers on the stand is risky, just as putting any defendant on the stand is risky, no matter how well prepared he is," said Norman Berle, a criminal lawyer who teaches business and ethics at the Fordham University Graduate School of Business.