Boss feared talks would show fraud, ex-CFO says

WorldCom's cooked books alleged to kill merger plan

February 11, 2005|By BLOOMBERG NEWS

NEW YORK - WorldCom Inc. abandoned merger talks with Verizon Communications Inc. in 2001 because finance chief Scott D. Sullivan and chief executive Bernard J. Ebbers feared they'd have to disclose that they had cooked the company's books, Sullivan said yesterday.

"The real reason we were stopping discussions was because of the non-public information we'd have to exchange with Verizon," Sullivan testified in his fourth day on the witness stand at Ebbers' fraud trial in New York. That information might show "the adjustments we made" in the "line-cost and revenue areas."

Sullivan's account bolsters the government's contention that Ebbers had hands-on involvement in WorldCom's finances and counters defense claims that he left those matters to his top deputy.

Prosecutors say Ebbers masterminded the $11 billion fraud that drove the company into bankruptcy. WorldCom emerged from bankruptcy in April as MCI Inc.

Sullivan's testimony came amid reports that New York-based Verizon, the largest U.S. regional telephone company, is seeking to acquire MCI.

Ebbers, 63, is on trial in Manhattan federal court on charges of securities fraud and conspiracy. He faces a maximum of 25 years in prison if convicted.

Sullivan, 43, has already pleaded guilty and is seeking leniency at sentencing by testifying for the prosecution.

The government accuses Ebbers of orchestrating a scheme to hide $3.8 billion in costs in an effort to prop up WorldCom's stock price. Prosecutors contend he had a personal stake in that deception since Ebbers owed hundreds of millions of dollars in loans secured by his WorldCom holdings.

Sullivan testified that WorldCom and Verizon had begun exchanging financial information in August 2001 to see whether the two companies were compatible. As the process progressed, Sullivan said he told Ebbers he was concerned Verizon might discover that they had hidden line costs and made other accounting adjustments.

Ebbers said, "`You're right,'" then added, "`This isn't probably the best time to be talking to Verizon'" because WorldCom's stock price was too low, Sullivan testified.

Sullivan told jurors he telephoned Frederic Salerno, who was Verizon's chief financial officer at the time, and told him WorldCom was backing out of the possible deal.

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