US: Ebbers Sentenced to 25 Years in Prison for $11 Billion Fraud

Bernard J. Ebbers, the founder and former chief executive of WorldCom, was sentenced to 25 years in prison today for his role in the record $11 billion accounting fraud that brought down the telecommunications company in 2002.

Judge Barbara S. Jones handed down the sentence in Federal District Court in Manhattan, saying it was warranted by the extent of investor losses.

"Mr. Ebbers' statements deprived investors of their money," the judge said. "They might have made different decisions had they known the truth."

Moreover, she said, "it seems clear to me that Mr. Ebbers was a leader of criminal activity in this case."

As Judge Jones explained the sentence, thunder from a summer storm could be heard inside the courtroom, where Mr. Ebbers, 63, slumped forward in his chair and dabbed his eyes with a handkerchief from his pocket. Later, as the courtroom cleared, he turned to his wife, Kristie, who had been sitting behind him crying quietly, and they embraced. Mr. Ebbers was ordered to report to prison on Oct. 12.

His lawyers plan to appeal his case, and Judge Jones has not yet decided whether to allow Mr. Ebbers to remain free during that process, which sometimes takes years.

Mr. Ebbers's sentence is perhaps the toughest for corporate wrongdoing in recent memory - eclipsing the 15 years handed down last month to John J. Rigas, the 80-year-old former chief executive of Adelphia Communications - and legal analysts said it should help the government negotiate settlements as it prosecutes other cases. More important, prosecutors said, it should prove to be a deterrent.

"This is the case that is almost the standard for large frauds," David B. Anders, an assistant United States attorney, said in arguing for a severe sentence under federal sentencing guidelines.

Mr. Ebbers's lawyer, Reid Weingarten, was at times in tears today as he pleaded for leniency before Judge Jones. He said afterward that he would appeal the sentence.

"The problem is that Bernard Ebbers was transformed into a symbol of corporate corruption," Mr. Weingarten told reporters outside the courtroom. "I was very upset and am very upset.

"I believe we have very meritorious appellate issues," he said. "We can't wait to appeal this case."

Mr. Ebbers and his wife left the courtroom quickly and more quietly than they had arrived for the 10 a.m. hearing, when Mr. Ebbers, appearing tense, shoved a news photographer who got in his way. Once in the courtroom, Mr. Ebbers paced slowly, arms crossed tightly and brow furrowed.

The former chief executive, who Mr. Weingarten said was going home to Mississippi, must check in with a probation officer within 72 hours. Judge Jones said she would recommend that Mr. Ebbers be sent to the federal prison in Yazoo City, Miss., as his lawyers requested. She also responded favorably to his lawyers' request that she recommend that Mr. Ebbers be treated as a low-security prisoner, rather than the medium-security prisoner that his lengthy sentence implies. Sentences longer than 23 years and 6 months typically mandate a medium-security facility.

As WorldCom's chairman and chief executive, Mr. Ebbers was accused of orchestrating the largest corporate fraud in United States history, an accounting scheme that inflated the company's profits by $11 billion over a handful of years.

The deception topped a wave of corporate scandals that devastated investors and prompted lawsuits and legislative reforms. Executives at several companies have gone to trial in the last year, with mixed results, and some are still waiting.

Like Mr. Rigas, L. Dennis Kozlowski, former chief executive of Tyco International, was convicted. But Richard M. Scrushy, who founded the HealthSouth Corporation, the country's largest chain of rehabilitation hospitals, was acquitted of directing a $2.7 billion accounting fraud.

Kenneth L. Lay, the former chairman of Enron, is to be tried next year on fraud and other charges, as is Jeffrey K. Skilling, Enron's former chief executive.

Mr. Ebbers's fate may prompt other executives facing charges to give serious consideration to plea agreements, said Charles L. Babcock of the Texas law firm Jackson Walker. "In a plea deal, at least you have some certainty of a range" in the sentence, Mr. Babcock, who specializes in trial tactics, said. "Ebbers is exhibit A of what can happen to you if you decide to go all the way."

Michael N. Levy, who specializes in white-collar defenses at McKeen Nelson, described Mr. Ebbers's sentence as "extremely severe," noting by comparison that the maximum federal penalty for manslaughter is 10 years. "If Bernard Ebbers had been sentenced to 10 years in jail, corporate executives would be just as scared of committing fraud," he said. "I'm not sure that there's a substantial deterrent effect to a sentence that large." Before she imposed Mr. Ebbers's sentence, Judge Jones allowed remarks from a former employee of the company who said he represented people who had not benefited from a class-action shareholder settlement that Mr. Ebbers agreed to last month.

"He can never repay me or the tens of thousands like me whose lives disintegrated in the blink of an eye," said Henry J. Bruen, 37, a former WorldCom employee from White Plains, N.Y. "Where do I get my life savings back from? Where is the attempt to make victims like me whole, not just class-action litigants?"

During the hearing this morning, Mr. Ebbers' lawyer said that it was difficult to put a figure on the losses to the company or investors.

But the judge responded that "the loss figure in this case, it seems to me, in no way can be said to overstate the seriousness of the fraud."

With the money it raised from investors who bought its high-flying stock, WorldCom acquired dozens of other businesses, and competitors like AT&T overhauled their own operations to try to keep pace with its phantom earnings.

When the extent of WorldCom's fraud became clear in 2002, its share price plummeted, and the company soon filed for bankruptcy protection. It has since emerged from Chapter 11 bankruptcy under the name of a company it acquired, MCI, and agreed in May to an acquisition by Verizon.

Mr. Ebbers took the witness stand during his trial - a move that legal analysts described as a gamble - and maintained that he had had no knowledge of the fraud going on at the company.

A few jurors later said that Mr. Ebbers's testimony had at times seemed evasive and had had the effect of persuading them of his guilt.

After eight days of deliberation in March, the jurors convicted him of securities fraud, conspiracy and seven counts of filing false reports with regulators. Federal sentencing guidelines, which a Supreme Court ruling last year declared were no longer binding on judges, pointed to a sentence of 30 years' to life imprisonment.

Federal prosecutors had sought a life sentence as a warning to others. "Corporate executives will, in the future, consider the sentence imposed on Ebbers whenever those executives are tempted to mislead shareholders or manipulate the financial statements of their companies," the prosecutors said in court papers seeking a life sentence.

The defense, seeking a lesser sentence, cited Mr. Ebbers's age and failing health, as well as his philanthropy. His lawyers also described his anonymous donations and other acts of charity, citing 169 letters written on his behalf by friends, family and former colleagues and submitted to Judge Jones. "Doesn't that count?" Mr. Weingarten asked on behalf of his client, his voice breaking. "Doesn't it count particularly on this day?"

Judge Jones said that they did, and that she had considered them in determining Mr. Ebbers's sentence.

Defense lawyers also argued that Mr. Ebbers had made no money from the fraud because he had held his WorldCom shares even as their value plunged, and they contended that the size of the loss to investors - billions of dollars by most estimates - exaggerated the severity of the fraud itself.

Mr. Ebbers already agreed in a civil settlement last month to give investors nearly all of his personal assets, including his house in Mississippi and various businesses, valued at about $40 million, after once topping $1 billion.

Ken Belson contributed reporting for this article.

AMP Section Name:Corruption
  • 186 Financial Services, Insurance and Banking

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