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Ebbers mounts an 'I never knew' defense

Former WorldCom CEO displays innocence in court as part of defense effort to cast him as someone who relied on others.

Bernard Ebbers, the former WorldCom chief executive once hailed as one of the most brilliant telecommunications entrepreneurs ever, told a packed courtroom yesterday, "I don't know about technology, and I don't know about finance and accounting."
Ebbers

In taking the stand in his own defense, Ebbers displayed a folksy innocence that was part of an effort to cast him as someone who relied on others with greater expertise to handle the details of running WorldCom as it grew from a small, regional reseller of phone services to one of the largest companies in American industry.

Under questioning by his lawyer, Reid Weingarten, Ebbers also disputed the prosecution's star witness, Scott Sullivan, WorldCom's former chief financial officer, who testified that Ebbers directed the fraud. Ebbers said over and over that Sullivan never told him that his accounting changes "weren't right" and that he did not recall conversations that Sullivan said they had.

"He has never told me he made an entry that wasn't right," Ebbers said. "If he had, we wouldn't be here today."

Ebbers also said he was ignorant about accounting in general. "I know what I don't know," he said, referring to his lack of understanding of the technology WorldCom sold as well as its finances.

He testified that he did poorly in college, where his "marks weren't too good," and that he bounced from one job to another, working as a milkman, a basketball coach and a warehouse manager, before he and a small group of investors started the predecessor of WorldCom in 1983.

Prosecutors contend that Ebbers orchestrated an elaborate $11 billion fraud that led to the biggest corporate bankruptcy in history and toppled the company.

Ebbers, who is accused of fraud, conspiracy and filing false financial reports, said he was "shocked" when he heard in June 2002 that an internal auditor had unearthed billions of dollars in buried expenses. "I never thought anything like that had gone on," he said. "I put those people in place, and I trusted those people. I had no earthly idea that that would occur."

Ebbers' contention that he knew little about the daily running of the company's finances stands in contrast to his uncanny ability to win the confidence of Wall Street and investors in his drive to expand the company in the 1990s.

Prosecutors have tried to show that he was intimately involved in the company from its beginnings as a tiny reseller of long-distance phone service based in Mississippi and that he was also at the center of dozens of acquisitions that turned his company into a telecommunications behemoth.

In the trial, prosecutors showed television and audio interviews of Ebbers speaking knowledgeably to investors about the company's financial forecasts and saying WorldCom's accounting was sound.

Now, facing 25 years in prison, Ebbers, 63, said his role was largely that of coach. He said his main job was to motivate the sales and marketing team.

"I focused on the area I thought I could handle," he added, referring to his role in managing the sales force.

Ebbers recounted visiting the headquarters of BP Amoco in London as part of a team making a sales presentation. It was there, he said, that he realized he could no longer understand the technology his company was selling.

"To be honest with you, it was embarrassing," Ebbers said on the stand.

In painting the picture of an earnest man aware of his limitations, the defense has tried to show that Ebbers relied on financial experts and was unaware when they started hiding billions of dollars in expenses to mask the company's deteriorating condition.

Ebbers is not the only fallen corporate titan who--after being paid hundreds of millions of dollars to run a multibillion-dollar company--has fallen back on the legal defense that he was in the dark and too unsophisticated to know what was happening.

Richard Scrushy, the former head of HealthSouth on trial on fraud charges in Birmingham, Ala., has adopted a similar defense. Kenneth Lay, the former chairman of Enron, is expected to use that defense when his trial begins next year.

The prosecutors, at the start of their cross-examination of Ebbers, which began late yesterday afternoon, tried to take some of the gloss off the defense's portrait.

In more than an hour of questioning, David Anders, an assistant U.S. attorney, peppered Ebbers about his leadership role at WorldCom. Ebbers answered most of the questions by saying he was only part of a team and that decisions at WorldCom were not based on his whims or dictates.

But at times, Ebbers appeared to lose patience with some of the questions. Asked about accounting events more than a decade ago, Ebbers snapped: "I have no recollection of what we did in 1992. Why, that was 13 years ago." Another time, he folded his arms as if in defiance.

Ebbers' reaction to the prosecutor's questions might be interpreted by the jury negatively and shows one danger in letting defendants take the stand. In most criminal trials, taking the stand in one's own defense is risky because it allows the prosecution to introduce other potentially damaging evidence. But Ebbers took the gamble because so much of the prosecution case rests largely on the uncorroborated testimony of Sullivan.

In his seven days of testimony, Sullivan said he told Ebbers repeatedly about WorldCom's deteriorating finances and how questionable accounting maneuvers could be used to pump up revenue and profits. Ebbers, he said, ordered him to doctor the company's books.

Ebbers denied those allegations squarely.

He also said he did not recall whether Sullivan was at a dinner at Morton's restaurant in Washington in March 2001. According to Sullivan, it was there that he told Ebbers about an effort to reclassify some costs as long-term expenses instead of continuing costs--a central element of the fraud case.

At one point, Ebbers said, "I didn't know there was such a thing as line-cost capitalization," referring to the tactic Sullivan said he used to hide some expenses.

In addition to countering specific charges that Ebbers knew about the fraud, Weingarten also tried to make his client out to be a victim of the company's collapse as well. Ebbers testified that he never sold any WorldCom stock, even though he stood to gain millions of dollars. Indeed, Ebbers said he bought 3 million WorldCom shares, even after he was forced to resign in April 2002.

In testimony, Ebbers said he gave away about $100 million anonymously to colleges and charities, and hoped to set up a foundation for children with special needs.

Weingarten tried to recast Ebbers' reputation as a tyrant and a nitpicker. He asked Ebbers about his widely reported decision to get rid of the free coffee at WorldCom. Prosecutors introduced details about that decision to try to show that Ebbers was petty and involved in even the smallest details.

Ebbers said he approved the suggestion, which came from a cost-cutting team.

"I did not ever count coffee filters or coffee bags," Ebbers said.