NEW YORK (CNN/ Money) -
Two former WorldCom executives were indicted Wednesday, charged with fraud that helped the bankrupt telecommunications company hide more than $5 billion in expenses.
A federal grand jury indicted former Chief Financial Officer Scott Sullivan and former Director of General Accounting Buford Yates on seven counts of securities fraud, conspiracy to commit fraud, and filing false statements with the Securities and Exchange Commission.
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| Scott Sullivan during his Aug. 1 arrest. |
The charges against Sullivan replace those made earlier this month in a complaint filed by the U.S. Attorney for the Southern District of New York.
"The charges filed today reflect our commitment to pursue fraud cases both up and down the corporate ladder," U.S. Attorney James Comey said in a statement.
Neither Sullivan nor Yates was expected to make a court appearance Wednesday, and a court date has not yet been set. Sullivan's attorney was unavailable for comment, and Yates' attorney David Schertler declined to comment.
Each man faces a total of 25 years in prison and fines of $2.25 million if convicted of all counts.
Former WorldCom controller David Myers was not indicted Wednesday, but the U.S. Attorney's office plans to file a pleading, called a "criminal information," describing him as an unindicted co-conspirator. Myers' attorney was unavailable for comment.
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Prosecutors also plan to file similar papers against two other former WorldCom accounting executives, Betty Vinson and Troy Normand. The papers indicate that Myers, Vinson and Normand have waived their right to be indicted by a grand jury and are cooperating with the investigation.
Sullivan had been in plea talks with prosecutors, but balked at terms of a potential agreement because it included admitting to charges that carry a jail sentence that could exceed 10 years, the Wall Street Journal reported Wednesday.
People close to Sullivan told the paper he may decide to take his chances with a jury because he has no criminal record, a wife with a serious illness, and a two-year-old child.
Myers, who was arrested with Sullivan earlier this month on other fraud charges, may be more willing to enter a plea, as documents have shown he admitted the company's accounting treatment was improper and that he tried to prevent a coworker from raising accounting questions with the company's auditors, the Journal report said.
Investigators had also been talking to Yates in an effort to obtain more information about what other company officials knew about its accounting practices, the report said.
According to the indictment, Sullivan, in an effort to help WorldCom's quarterly earnings meet Wall Street expectations, told Myers, Yates, Vinson and Normand to shift some lease payments from the income statement to the balance sheet in various ways, to keep quarterly expenses low enough to help WorldCom's earnings meet Wall Street expectations.
The indictment says these shifts boosted WorldCom's earnings by about $5 billion between the third quarter of 2000 and the first quarter of 2002.
WorldCom filed the largest corporate bankruptcy in U.S. history on July 21, claiming $41 billion in debt. The company has admitted to improperly accounting for about $7.2 billion in expenses.
This and other scandals, including the collapse of Enron Corp., weakened investor confidence in U.S. stocks and led to calls for sweeping reform of corporate accounting.
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