Ebbers was optimistic in 2002

Ex-WorldCom CEO said dividend would be paid, though opposite was true

February 15, 2005|By BLOOMBERG NEWS

NEW YORK - Former WorldCom Inc. chief executive Bernard J. Ebbers told a television interviewer that dividends for the company's MCI Group weren't at risk even though his finance chief had told him that there wasn't enough cash to pay them, jurors at his fraud trial were told yesterday.

Prosecutors in Manhattan federal court showed the jury a video recording of Ebbers saying in a February 2002 interview on the CNBC cable news channel that the dividend would not be imperiled by WorldCom's slowing growth for 2002.

Earlier, former WorldCom finance chief Scott D. Sullivan testified that he warned his boss in a Jan. 23, 2002, handwritten note that "there is insufficient cash flow to pay the dividend." The memo said the cash flow was a problem because of the company's "disaster fourth quarter."

Jurors were shown the note, which supports the prosecution's claim that Ebbers misled investors about the company's financial health to prop up its stock price. The dividend was never paid.

"In the face of information from the most qualified financial man in the company that they can't make the dividend, he said quite the contrary to the public," said Kevin O'Brien, a former federal prosecutor. "If Sullivan is believed, that's pretty damning. That's the essence of securities fraud."

Prosecutors say Ebbers helped direct the $11 billion fraud that drove the company into bankruptcy in July 2002. WorldCom emerged from bankruptcy in April as MCI Inc.

"The fact that they now have a physical piece of evidence, albeit just a note, but something that the jury can examine, it raises the case up a notch," said O'Brien, a lawyer with Dechert LLP in New York.

While Sullivan testified, Verizon Communications Inc., the largest regional telephone company, offered to buy MCI Inc., the second-largest U.S. long-distance telephone company, for $6.7 billion.

Ebbers, 63, is on trial on charges of securities fraud, conspiracy and filing false statements to the Securities and Exchange Commission. He could be sentenced to a maximum of 25 years in prison if convicted.

Sullivan, 43, concluded five days of testimony as the government's main witness. He has pleaded guilty to fraud charges and is seeking leniency at sentencing by testifying for prosecutors.

Cross-examination by chief defense lawyer Reid Weingarten is expected to begin tomorrow. U.S. District Judge Barbara Jones, who recessed the trial early yesterday, said "some issues" had come up. She didn't elaborate.

Weingarten and Megan Gaffney, a spokeswoman for interim U.S. Attorney David Kelley, declined to comment on the delay. Weingarten said transcripts of lawyers' discussions with the judge on the matter had been sealed but that "it's nothing exciting."

During the trial, prosecutors and the defense have sparred over whether the government is permitted to ask Ebbers about alleged "personal indiscretions," if he takes the stand, according to the transcript of a Feb. 2 conference. Jones said she would rule on the admissibility of such evidence if the two sides were unable to agree, according to the transcript.

In the CNBC interview, shown on a large screen, Ebbers was questioned by commentators about WorldCom's declining financial health.

"We have been very conservative in our accounting practices," Ebbers said.

In the fourth quarter of 2001, WorldCom hid more than $900 million in expenses and booked more than $130 million in one-time revenue, Sullivan said last week. With those adjustments, WorldCom's growth rate was reported as 7.1 percent.

For 2002, the company was projecting a 5 percent growth rate, Sullivan said, incorporating similar plans to continue hiding expenses as longer-term capital expenditures.

Sullivan testified that in February 2002, he learned that WorldCom's revenue growth was lower than in the previous year, but that Ebbers again refused his request to tell investors, he said.

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