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By Steve Rosenbush One of the wildest careers in corporate history ended on Mar. 15, as a federal jury convicted WorldCom founder Bernard Ebbers of defrauding investors in what prosecutors described as a desperate attempt to prop up the failing telecom giant.Eight days of deliberations ended a few minutes after noon, as the bailiff announced that the jury had reached a verdict. Ebbers, 63, stood up, buttoned his coat, sat back down, and took a sip of water from a bottle. Then he propped his elbows on the wooden defense table and clasped his hands together as the jurors filed into the imposing old courtroom in lower Manhattan.
His face turned red as he heard the verdict, but he remained otherwise composed while the forewoman pronounced him guilty of all nine counts, which include fraud, conspiracy, and filing false documents with the Securities & Exchange Commission. Ebbers looked at the jurors as U.S. District Court Judge Barbara Jones polled each member of the panel. One row behind him, Ebbers' wife and daughters cried softly.
"WE'RE DEVASTATED." Ebbers, who is free on bail, slowly walked across the courtroom to get his coat. Then he and his wife left the courthouse and past a throng of reporters to a cab, declining any comment on the verdict. The Mississippian must return to New York City for sentencing at 4 p.m. on June 13. He faces up to 85 years (see BW Online 3/16/05, "Five Lessons of the WorldCom Debacle").
Members of the jury also left the building without commenting. Defense attorney Reid H. Weingarten said he would appeal the decision. "We're devastated. We strongly disagree with the verdict," said Weingarten, himself a former federal prosecutor.
Standing in the cold amid a throng of news reporters and cameramen, Weingarten said his major objection will be that the government refused to grant immunity to three former WorldCom executives, including former chief operating officer Ron Beaumont. They all declined to testify to avoid incriminating themselves. But Weingarten said that if they had taken the witness stand, they would have testified that they knew nothing whatsoever about the accounting fraud, bolstering Ebbers' own claim of ignorance.
UP FROM NOTHING. Weingarten also believes that the trial should have been held in Mississippi, where WorldCom is based. From the start, Weingarten argued that Ebbers simply didn't know enough about accounting to recognize, let alone orchestrate, an $11 billion accounting fraud, the largest case of its kind in history.
Ebbers grew up in a family of modest means in Edmonton, Alberta, where his father worked as a mechanic. He flunked out of college twice and worked as a milkman and bouncer before ending up in Mississippi, where he played college basketball. His college career ended after a group of thugs mugged him and cut his Achilles tendon.
He went on to coach high school ball, manage a warehouse, and invest in a small motel. He later joined a telecom reseller as an investor in 1983. When it began to fail, friends convinced him to become CEO. He turned the business around and built a global giant.
GARGANTUAN GROWTH. Indeed, WorldCom was the star of the late 1990s telecom boom. It regularly posted revenue growth of 20% a year as it gobbled up one company after another in a string of acquisitions. For a while, it ranked as the best-performing Nasdaq stock. Ebbers became a billionaire. And the company's soaring value enabled it to acquire larger rival MCI for $47 billion in 1998.
At its peak, WorldCom had revenues of $40 billion a year and sold telecom services to companies in the U.S. and financial centers around the world. The company's fortunes took a dive in 2000, though, as the Nasdaq plummeted.
The end of the tech boom triggered an economic recession, followed by a grindingly slow recovery. That alone would have been enough to bring WorldCom crashing to earth. But Ebbers' outfit sustained another blow as regulators in Europe and the U.S. blocked its plan to acquire rival Sprint (FON
) in a $152 billion deal.
HUGE LOANS. That was a turning point in WorldCom's dramatic history. Regulators made it clear the roll-up was over. While WorldCom had invested a lot of money in constructing telecom networks, mergers and acquisitions had been the heart of its business plan and the key to its success on Wall Street. Suddenly, it couldn't find a legitimate way to maintain its identity as the world's largest growth company.
Rather than admit that painful truth, prosecutors argued in the three-week trial, Ebbers and five other key executives conspired to cook WorldCom's books and hide reality from investors and the Securities & Exchange Commission.
Prosecutors said Ebbers was under enormous personal pressure to boost the stock. Loath to undermine investor confidence, he had long refused to sell any shares. But he wanted to reap the benefits of his wealth, so he put up his stock as collateral to borrow more than $400 million, and used the cash to buy a huge ranch in Canada, a farm in the Southeast, a yachtmaker, and other companies.
$11 BILLION GONE. As the stock price crashed, Ebbers faced a series of margin calls in 2000 from his lenders, who wanted him to put up more cash or sell his stock.
The company eventually admitted to $11 billion in accounting fraud. The fraud was detailed in an internal report led by former SEC official William McLucas, who said the misdeeds were a "consequence" of Ebbers actions.
All five other defendants pleaded guilty, but Ebbers decided to test fate in an all-or-nothing battle with the government. He took the stand in his own defense, a move that opened him up to a tough cross examination. He argued that the fraud was perpetrated by double-crossing employees like Chief Financial Officer Scott Sullivan, who had previously pleaded guilty and was the government's star witness against his former boss.
SERIAL LIAR. Ebbers testified he didn't know about the misdeeds until after the Securities & Exchange Commission began its investigation. "I was shocked. I never thought anything like that was going on. I put the people in place. I trusted them. I had no earthly idea anything like this had occurred," he declared.
But Sullivan told the jury that he warned Ebbers that the company's finances were fading and that WorldCom's only hope of meeting its promises to investors was to improperly transfer line costs -- payments to other telecom companies -- from the operating budget to the capital budget.
Ebbers simply responded that the company had to meet its promises to investors. "When Ebbers told Sullivan to hit the numbers, he was directing him to commit fraud, because Ebbers knew line costs didn't simply disappear," Assistant U.S. Attorney David Anders said in his closing statement to the jury. "Faced with this choice, Bernard Ebbers lied, not once, not twice, but again and again and again."
STUBBORN WITNESS. The jury agreed. Now Ebbers has joined the ranks of Martha Stewart, ImClone founder Sam Waksal, Credit Suisse tech banker Frank Quattrone, and cable TV magnate John Rigas, former business stars who have been brought to heel in a court of law. And it marks Anders, who also won a conviction in the Quattrone case, as one of the government's most effective corporate crime prosecutors.
Dozens ofpeople, including spectators, reporters, and Ebbers family members, milled about the courtroom day after day, as the deliberating jury sent out vague and sometimes baffling queries. On several occasions, the jurors asked to see pieces of evidence that didn't exist. They even sent a note requesting Domino's pizza -- some courthouse denizens interpreted that as a sign they were gearing up to mark a verdict with a pizza party. Instead, the note had a more directexplanation: Jurors were sick of cafeteria food.
Weingarten said Ebbers was under enormous personal pressure. He was a stubborn witness, but off the stand, he treated prosecutors with courtesy, managing a smile to them from time to time.
ALONE IN A CROWD. When the jury deliberations began, Ebbers clamped an unlit cigar between his teeth, looking every bit the rebellious country boy with his longish grey hair and beard. By the end of the trial, he often placed his arms on the massive wooden defense table and rested his head in hands.
At that moment, he seemed all alone, despite the presence of his wife and daughters just a few feet away. All the other defendants had pleaded guilty, leaving him to face prosecutors on his own. And now it appears he's headed for federal prison on his own, too. Rosenbush is a senior writer for BusinessWeek Online in New York