Bloomberg News

Obama Stimulus Aids WorldCom Felon With Health Care Loan

June 21, 2012

David Myers was at the epicenter of one of the biggest corporate frauds in U.S. history. Now the former WorldCom Inc. controller is rebuilding his life a decade later with the help of the federal government.

Ways LLC, a company formed by Myers and Peter Koury, a health-care executive, received one of the 515 loan guarantees made by a U.S. Department of Agriculture rural development program under the 2009 federal economic-stimulus bill. The USDA guaranteed a $7.45 million loan from a Louisiana bank, allowing Myers and his partner to finance the purchase of a home health agency that provides care to 650 people in the Mississippi Delta, one of the poorest regions in the U.S.

Myers, 54, served nine months in prison for helping to falsify the telecommunications company’s books to meet earnings targets. The $11 billion accounting fraud wiped out more than 17,000 jobs and $184.6 billion in market value from WorldCom’s high on June 1999. Myers’s cooperation with prosecutors led to the guilty plea of Scott Sullivan, WorldCom’s former chief financial officer, who became the star government witness in the trial of Chief Executive Officer Bernie Ebbers. Ebbers was convicted in 2005.

“I understand what the costs of my actions were to me personally, to my family, to the people that invested in WorldCom,” Myers said in a June 5 interview at his office in Jackson, Mississippi. “I can never allow something like that to ever happen again.”

Ex-Employee Outraged

A former WorldCom data analyst who lost most of her savings in the fraud is outraged that the government would trust Myers with a loan guarantee. The lead prosecutor in the WorldCom case disagrees and says Myers accepted responsibility for his actions, cooperated fully against Ebbers, learned his lesson and is no bigger risk than anyone else.

While no federal rule or law barred a loan guarantee to Myers and he wasn’t obligated to disclose his conviction, he wrote a three-page letter to the USDA describing his participation in the fraud and all the steps he has taken, including speeches to college audiences and corporate ethics programs, to encourage others to avoid his mistakes.

The Obama administration’s $760 billion stimulus program, which provided loans, guarantees and direct grants to support businesses during the longest recession since the 1930s, has emerged as an issue in the presidential campaign.

$1.6 Billion Loaned

The USDA’s guaranteed-loan program, which got extra funding in the stimulus package, backed ventures as diverse as a gasoline station in upstate New York and a fiber-optic cable project linking American Samoa and Hawaii as part of $1.6 billion loaned out. Three loans totaling about $1 million have defaulted, Courtney Rowe, a department spokeswoman, said by e- mail -- a rate lower than 0.1 percent.

Other lending programs under the stimulus have been controversial. Solyndra LLC, a solar-energy equipment maker based in Fremont, California, collapsed last year after winning a $535 million U.S. loan guarantee, and Republicans including Mitt Romney say that the administration provided the taxpayer backing as a reward for political support. A foundation run by George Kaiser, an Oklahoma billionaire and Obama fundraiser, was a leading investor in Solyndra.

Neither Myers nor Koury contributed to Obama, Federal Election Commission records indicate.

Myers pleaded guilty to fraud, conspiracy and false filings with the U.S. Securities and Exchange Commission in September 2002. Federal law prohibits the USDA from making a grant or providing a loan or loan guarantee to corporations or executives who have been convicted of a felony within the preceding two years.

Taxpayer Dollars

It’s wrong for the federal government to use taxpayer dollars to back loans for people convicted of crimes, said Margo Mayberry, a former WorldCom data analyst, in a telephone interview from her home near Columbus, Ohio.

“I don’t think criminals should be given federal stimulus money,” said Mayberry. “Obviously he doesn’t know how to handle money honestly to begin with, or he wouldn’t have been involved with the fraud at WorldCom.”

Loan guarantees provide lenders assurance they will be repaid and can leave the government on the hook if a borrower defaults.

Ways LLC met all eligibility requirements for funding under the UDSA’s Business and Industry Guaranteed Loan Program, according to Jay Fletcher, a spokesman for the department.

Weighs Factors

“When considering loan applications, USDA weighs a variety of factors to determine if a project will further the program’s mission to improve economic conditions in rural communities,” Fletcher said by e-mail. “The borrower demonstrated strong repayment ability, sufficient security for the loan and the loan saved jobs and helped meet the tremendous need for health care in rural Mississippi.”

The USDA doesn’t know whether other felons have received guarantees under its loan programs, Fletcher said.

“USDA issues loan guarantees only to financial institutions that carefully screen borrowers to ensure they meet all regulatory and legal requirements and demonstrate an ability to repay the loan as part of our fiduciary responsibility to the U.S. taxpayer,” he said.

Mayberry, 68, a single mother of two, had just built a new home and was putting her children and herself through college when she lost her WorldCom job as the company collapsed amid the accounting fraud in 2002. She estimates she lost $5,000 to $10,000, most of her savings.

‘Grossly Wrong’

“I’m basically a forgiving Christian person, but what they did was grossly wrong, to their own human kind they did that,” Mayberry said.

Since Myers and Koury completed the purchase of Sunflower Home Health from the North Sunflower Medical Center, a county- run hospital, in July 2010, their company has added 16 jobs, a 25 percent increase, Myers said. The health-care provider serves an 11-county area where unemployment ranged from 8.2 percent to 14.9 percent in May.

The average full-time nurse’s salary is $22 to $30 an hour, or $45,800 to $62,400 a year, Myers said. Mississippi’s median household income is $36,851 in 2010 according to the U.S. Census Bureau.

Sunflower employs nurses and physical therapists who visit patients in their homes, some infested with mice or rats and which don’t have air conditioning, Koury said. Many clients have diabetes. Almost all are covered by Medicare, the government’s health-insurance program for people 65 or older. About 1 percent of patients are on Medicaid, the federal-state health insurance program for the poor, he said.

‘Sickest’ Patients

“I can’t think of a better place for government money to be spent than serving the sickest of the sick and the poorest of the poor,” Koury said in an interview at Ways LLC’s office, decorated with photos of Delta scenes and a cutting of a cotton plant with its bolls open.

In his three-page letter to the USDA in January 2010, Myers disclosed his crimes.

“I fully realize that by disclosing these facts I run the risk of being asked to remove myself from the proposed transaction. I am willing to accept that risk as I can never again do something that I know to be morally, ethically or legally wrong,” Myers wrote in the letter, obtained from the USDA under a Freedom of Information Act request. “While signing the loan application without mentioning anything is fully in my rights, it is clearly wrong.”

The letter that Myers wasn’t legally required to write nonetheless set off a warning signal at the department’s rural development office in Jackson.

Bettye Oliver, a program director, asked an attorney with the USDA’s office of general counsel in Little Rock, Arkansas, who was reviewing Ways LLC’s application, whether Myers should be removed from the transaction.

‘Multiple Felony’

“While David Myers has not been debarred from doing business with the federal government, this multiple-felony conviction does raise a red flag as to the financial influence that David Myers may have concerning this loan,” wrote Laurie Peterson, a lawyer with the general counsel’s office in a March 23, 2010, letter. “As this is a guaranteed loan, Rural Development has little control over the disbursement and application loan proceeds.”

Koury, a 52-year-old former executive vice president of finance for a 535-bed hospital in Jackson, owns 49.6 percent, while Myers owns 4.99 percent and individual investors who loaned the two $1.6 million so they could meet a 10 percent equity requirement for the USDA program, own the rest, Myers said. Myers and Koury declined to name the individual investors.

Honors Student

Myers, a soft-spoken man who drives a black Nissan Titan pickup truck, was born in Oxford, Mississippi, the home of Nobel Prize-winning author William Faulkner. Myers said he moved to Jackson, the state capital, before he was a year old and grew up there, attending a Baptist Academy, where he was an honors student.

Myers went to the University of Mississippi, or “Ole Miss” in Oxford, graduating with a degree in marketing in 1979 and in accounting in 1982, according to a court transcript.

After college he went to work for Ernst & Young LLP in Jackson and Houston and became treasurer and chief accounting officer of Lamar Life Insurance Co., according to Myers’s letter to the USDA.

In 1995 he joined WorldCom, which had grown from a small telephone company to become the second-largest long-distance service provider in the U.S. under Ebbers, a former milkman and barroom bouncer. Myers became controller in 1997.

As the bubble in Internet and telecommunications share prices burst, WorldCom’s revenue plummeted. To meet stock analysts’ expectations, WorldCom’s chief financial officer, Scott Sullivan, asked Myers to book entries that reduced the company’s costs and increased earnings.

‘Crunch Time’

“When crunch time came and somebody asked me to do something improper, instead of me walking away from it, I let their morals and ethics override my own,” Myers said in the interview. “You can’t ever do that.”

From the end of the first quarter through the second quarter of 2002, Myers told his staff to transfer $3.85 billion from line cost expense accounts to capital expenditure accounts.

After a tip to WorldCom’s internal-audit department about accounting improprieties, Cynthia Cooper, the head of the department, started an investigation. When Cooper asked Myers for documents that would support the capital expenditure entries, he confessed there were none and agreed to help with the probe.

In September 2002, Myers pleaded guilty and began helping the government in cases it was building against Sullivan and Ebbers.

Most Cooperation

At Myers’s sentencing in 2005, David Anders, the federal lawyer who led the WorldCom prosecution, said Myers provided the most cooperation of five former WorldCom employees in its case against Bernie Ebbers.

“Myers never wavered in his decision to accept responsibility for his actions and to acknowledge wrongdoing,” Anders wrote in a sentencing letter.

Now a partner at Wachtell, Lipton, Rosen & Katz in New York, Anders said taxpayers shouldn’t consider Myers a bigger risk than anyone else.

“He both paid his debt to society and, I think, learned a lot from it,” Anders said in a telephone interview. “I would hope that people like that can go on to do productive things.”

While in a minimum-security federal prison in Yazoo City, Mississippi, Myers taught high school equivalency classes to other inmates, he said. He helped those with an entrepreneurial bent develop business plans so that they didn’t return to jail.

Private Equity

After he was released from custody in August 2006, Myers worked on some private equity deals and started a consulting business offering audit and accounting services to small companies.

It was soon after Myers had given a speech in London to an Ernst & Young conference that Koury gave him a call. Koury and Myers had a large number of mutual friends. Myers’ wife, an interior designer, had helped Koury’s wife decorate their new home.

Koury had been working as a consultant for the North Sunflower Medical Center, a small county-owned hospital in Ruleville, Mississippi, about 120 miles (193 kilometers) northwest of Jackson, managing its home health care company and medical-equipment business. The Delta hospital wanted to sell the operation so it could build a surgical center and focus on its core service area of Sunflower County. Koury asked the hospital’s chief executive if he would sell it to him.

With credit tight because of the recession, Koury was having trouble financing the deal.

’Shut Down’

“We went to bank after bank after bank,” Koury said. “Nobody wanted to do anything. Banks were shut down. You couldn’t even get a car loan at the time.”

In September 2009, Koury got in touch with Union Bank, based in Marksville, Louisiana, which had a portfolio of USDA loans. Union agreed to finance the acquisition on condition that Koury obtain a USDA loan guarantee because the business was in Mississippi, said Greg Prudhomme, a vice president at the bank who handled Ways LLC’s loan.

Around the time that the bank agreed to finance the deal, Koury had a falling out with his first financial adviser. It was then that he called Myers.

As the loan guarantee application wound its way through the process, G. Gary Jones, a program director in the USDA rural development program’s Jackson office, said that for years there had been very little loan activity in the state. Jones didn’t provide specific figures.

Accelerated Process

In a May 3, 2010, e-mail, Ken Hennings, a branch chief with USDA’s Rural Business-Cooperative Service in Washington, told Mike Ladner in the Jackson office handling the Ways LLC application that the company didn’t need to do a feasibility study because it was buying an existing business. Hennings told Ladner to speed up the process.

“Figure out how to make this work,” Hennings wrote.

Since buying Sunflower Home Health, Koury and Myers have converted to electronic patient records from paper and opened up two more offices.

Myers serves as a consultant to Koury and is responsible for financial reporting.

Ways LLC is current on its loan to Union Bank, Myers and Koury said.

“If we do things right, the finances will take care of themselves,” Myers said.

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net

To contact the editor responsible for this story: Jeffrey Taylor at jtaylor48@bloomberg.net


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