WorldCom ex-CFO surrenders
Scott Sullivan and ex-controller turn themselves in to Feds; Ashcroft hints more charges may follow.
August 2, 2002: 3:07 PM EDT

NEW YORK (CNN/Money) - Scott Sullivan, the WorldCom chief financial officer fired when the company revealed a $3.8 billion accounting blunder, surrendered Thursday to face fraud charges in connection with the biggest bankruptcy in U.S. history.

A federal criminal complaint charged both Sullivan and David Myers, WorldCom's former controller, with securities fraud, conspiracy to commit securities fraud, and filing false statements that allowed the No. 2 long-distance phone service provider to inflate profits by hiding $3.8 billion in expenses.

Scott Sullivan, former WorldCom CFO. (Photo: CNNfn)

However, the pair are negotiating possible pleas with prosecutors which could avoid costly litigation. However, the two sides are not near clinching any deal, a person familiar with the situation told CNNfn.

But the negotiations could arm prosecutors for a second wave of charges against those involved with the WorldCom situation, including former CEO Bernard Ebbers, according to a Friday report in the Wall Street Journal.

Both men were released on bail Thursday afternoon after being led in handcuffs from the FBI building in lower Manhattan Thursday morning to face the allegations in a nearby U.S. federal court.

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WorldCom's former chief financial officer, Scott Sullivan, along with David Myers, WorldCom's former controller, has surrendered to federal authorities in Manhattan. CNNfn's Allan Dodds Frank reports.

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Coming six months after Enron's collapse, the WorldCom scandal helped sink investor confidence and push stocks to five-year lows. In response, President Bush this week signed a law intended to rein in corporate wrongdoers and toughen oversight of the beleaguered accounting industry.

Sullivan and Myers face up to 65 years in prison, said Attorney General John Ashcroft, who said the government stands ready to "prosecute corporate lawbreakers and protect the savings and pensions of Americans."

"Corrupt corporate executives are no better than common thieves when they betray employees and investors," Ashcroft said at a Washington press conference.

Examiner appointed

Separately, Judge Arthur Gonzalez, who is overseeing the WorldCom bankruptcy, approved the appointment Thursday of former U.S. Attorney General Richard Thornburgh to serve as the telecom's official independent examiner.

The examiner, appointed through U.S. Trustee Carolyn Schwartz, will monitor for mismanagement, irregularities and possible fraud at the company and produce a report within 90 days. Parties have until Tuesday to object to Thornburgh's appointment.

Thornburgh's selection comes on the same day that Sullivan and Myers were charged. Absent from Thursday's complaint was Bernard Ebbers, WorldCom's former CEO, who resigned in April. Ebbers and Sullivan exercised their constitutional right against self-incrimination last month when they declined to testify before a House panel investigating the scandal.

One count of securities fraud charges that Sullivan directed Myers to improperly account for billions of dollars of operating expenses as capital expenses starting last year. The second count involves conspiracy. And the final five counts involve filing false financial statements to the Securities and Exchange Commission, which has filed civil fraud charges against WorldCom.

Sullivan posted $10 million bail secured through a lien on his property in Boca Raton, Fla. Myers was released on $2 million bail. They are not allowed to leave the country and are due to appear at a hearing early next month.

Sullivan's lawyer, Irvin Nathan, called charges politically motivated.

"I don't think it's an accident that these charges were returned in the same week the president signed the corporate responsibility act," Nathan told CNNfn's The Money Gang. "I would also, however, remind everyone that the president himself said the accounting decisions are not matters of black and white; they are areas of gray. And that's what we are dealing with in this situation."

Myers and his lawyer were not immediately available for comment.

The surrender of Sullivan and Myers comes during a crackdown on white-collar crime. Federal agents last week arrested John Rigas, the founder of cable television company Adelphia, two of his sons and two other Adelphia executives on charges of looting the company of hundreds of millions of dollars. The Justice Department is investigating Enron, ImClone Systems and Qwest Communications.

Dennis Kozlowski, the former CEO of Tyco International, was charged two months ago with cutting illegal deals to avoid more than $1 million in sales tax.

The U.S. attorney's office of the Southern District of New York led the investigation that produced Thursday charges.

In outlining the accusations, Deputy Attorney General Larry Thompson said Sullivan and Myers and other unnamed parties committed the fraud by working backwards, starting with the numbers that Wall Street expected and stripping out costs to make those numbers.

Thompson described a struggling company desperate to appear financially sound.

The federal judge presiding over Thursday's charges, U.S. Magistrate James Francis, set a hearing on the matter for Sept. 3. Until then, lawyers for Sullivan and Myers may try to negotiate a plea bargain with prosecutors.

On June 25, WorldCom revealed that it hid $3.8 billion in expenses over a 15-month period starting last year. Since then, Clinton, Miss.-based WorldCom has cut thousands of jobs to save money amid customer defections and crushing debt.

It filed the biggest bankruptcy in history on July 22. WorldCom has vowed to emerge from that bankruptcy next year. The company did not immediately return a phone call requesting comment.

At the Washington press conference, Ashcroft was peppered with questions about Enron, a case that the attorney general recused himself from because of the campaign contributions made to him by the energy trader.

While it is investigating Enron, the Justice Department has brought no charges against anyone associated with the bankrupt company.

But Ashcroft hinted that more WorldCom-related charges could come.

"This is an ongoing matter and to comment further would be inappropriate, " Ashcroft said.  Top of page

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