Bernie Ebbers and the WorldCom Scandal

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The question as to whether Bernie Ebbers, the co-founder and former chief executive officer of the WorldCom trial that led to his conviction for twenty-five years in federal prison was fair still remains unanswered and can only be proven by appraising his conduct and actions when he was the chief executive officer at WorldCom.

Ebbers was charged with conspiracy, security fraud, and making false filings to the Securities and Exchange Commission. (Ronald B, 2002). Several civil lawsuits were brought before Ebbers and other senior executives of WorldCom including the former chief financial officer Scott Sullivan but however dismissed after Ebbers and the other senior agreed to distribute over six billion dollars plus interest to stakeholders who had invested their money in the company stocks (Jennifer B, 2007).

Ebbers was also charged with the indictment of the state securities laws by defrauding investors of WorldCom on numerous occasions between the periods of January 2001 and March 2002 (Larry N, 2004).

Ebbers defense claimed that he did not receive a fair trial since they were unable to call senior executives from WorldCom to testify who would have cleared Ebbers by supporting his claims that he had no knowledge of the improper accounting practices which were not in accordance with the generally accepted accounting practices. The defense claimed that the trial judge should have allowed former WorldCom executives to testify without risking being charged with engaging or conspiring with the fraudulent and criminal activities that were happening around the time at WorldCom (Alan A, 2006).

Ebbers’s defense also claimed that the sentence handed over to Ebbers was outrageous and not in any way justifiable since they were not given enough opportunity and authority to mount a strong defense like the prosecution (Patrick M, 2005).

From the federal investigations carried out after the securities and exchange commission filed for a civil lawsuit against WorldCom and its executives, reliable evidence shows that Ebbers together with the other senior executives were guilty, and so the conviction ruling made by the trial judge would be deemed to be right. Ebbers claiming to have no knowledge was not sufficient reason and defense to plead innocence (Patrick M, 2005).

However, the sentence delivered to Ebbers by the trial judge could have been subject to question given that other senior executives were given very much less harsh sentences than Ebbers, including Scott Sullivan who openly admitted to having carried out the fraud with full awareness of its repercussions. He was only charged for a five years sentence, unlike Ebbers who received a twenty-five-year sentence (Larry N, 2004).

Certain corporate governance issues were challenged on the influence of both Scott Sullivan and Bernie Ebbers who were both senior executives at WorldCom on the audit committee. It is said that both senior executives had a strong influence on the audit committee, therefore, making it easier for them to alter the financial statements to make them look favorable to their advantage. This was a responsibility that should have been assumed by independent directors with great financial expertise (Alan A, 2006).

Ebbers was surely guilty since as an employee of WorldCom, and especially the chief executive officer he was assumed to know or have of the company’s activities and attempts to defraud investors by devising a scheme together with other co-defendants which were against the Oklahoma Securities Act, therefore, comprising a violation (Patrick M, 2005).

Ebbers also a shareholder of the firm and at the same time an employee of the firm was expected to have knowledge of the companies activities because at one point he was seen to be interested in sharing his stock to pay off loans he had acquired for personal investment especially when the share prices began to fall, this was largely due to his fear that he would not be able to pay off the loans with the decreasing prices of the company stock which had been charged as collateral (Larry N, 2004). Senior executives had to convince them not to sell his stock and instead provided him with a loan to help pay off his debt.

Ebbers is also deemed to have full knowledge of what was happening since he was required to file the 10- q document with the Securities and Exchange Commission under federal law. This document was responsible for reflecting accounting entries that had been fraudulently prepared (Larry N, 2004). In fact, the accounting entries had been adjusted to reflect a favorable financial position for the company in order to boost the share price and to make the WorldCom stock attractive for investors to buy (Alan A, 2006). This was achieved by allowing certain material expenses to be understated as income was overstated. They credited certain expense accounts with the double-entry being debit of similar amounts in the reserve and capital accounts on the company balance sheet (Larry N, 2004).

There was a clear breach of corporate governance issues and ethical principles on the side of the independent auditors namely Author Anderson who reported no unusual transactions that took place which did not reflect a true account of the financial statements been prepared by WorldCom’s executives. In fact, it was their responsibility as independent auditors to introduce a conflict on the legality of such documents been prepared (Alan A, 2006).

Ebbers also the chief executive officer at WorldCom was said to be very influential and would use the board to support his bids. This is especially evidenced by the special loans given to him to finance his own personal investments to discourage him from selling his WorldCom stock, therefore denying the board and audit committee the required independence as effective corporate governance requires (Alan A, 2006).

This was totally in contravention with the generally accepted accounting practices and reflected a false representation of the company’s financial position. This information found in the 10-q document was expected to be used by investors when appraising the company in order to make sound and informed decisions when acquiring stock or WorldCom’s equity (Alan A, 2006).

It was also a total breach of the professional code of ethics for a senior executive of a large corporation who was required to always act fiduciary in the best interest of the company shareholders. It was also a perfect breach of the duty to care which Ebbers together with other senior executives at WorldCom were expected to exercise on behalf of WorldCom’s shareholders (Alan A, 2006).

In undertaking such responsibility Ebbers was seen to have engaged in an act of conspiracy whether or not, he was involved in the actual falsifying of documents, it was deemed that he was fully aware and had knowledge of the fraudulent activities being carried out by his colleagues and other employees of WorldCom(Jennifer B, 2007).

References

Alan A, (2006) choosing ethical solutions to RIM problems.

Jennifer B, (2007) Ebberss sentenced to 25 yrs in prison for 11 billion dollar fraud: New York Times.

Ronald B, (2002) The Enron ethics breakdown.

Gary F, (2005) Ebberss lack runs out in sweeping victory for the feds: USA Today.

Patrick M, (2005) Ebberss is found guilty in WorldCom fraud.

Larry N, (2004) former WorldCom CEO pleads guilty in corporate fraud case: Associated press.

WCFCG, (2005) Bernie Ebbers gets 25yrs for history’s biggest corporate fraud.

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Bernie Ebbers and the WorldCom Scandal

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