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The Honolulu Advertiser
Posted on: Friday, August 12, 2005

Testimony pays off in WorldCom case

By Walter Hamilton
Los Angeles Times

Former WorldCom Inc. chief financial officer Scott Sullivan, who faced a prison term of up to 25 years, was sentenced yesterday to five years in prison.

Louis Lanzano | Associated Press

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NEW YORK — It pays to spill the beans.

That was the consensus yesterday as former WorldCom Inc. finance chief Scott D. Sullivan was sentenced to five years in prison for his central role in the company's $11 billion accounting fraud — the same fraud that led to a 25-year sentence for his boss, Bernard J. Ebbers.

U.S. District Judge Barbara Jones called Sullivan the "architect" of the scam, but she said the light sentence was warranted because his court testimony proved pivotal in convicting Ebbers.

"His cooperation was the key factor in the case against Mr. Ebbers," Jones said.

The judge also said that although Sullivan was the "day-to-day" manager, "there is no doubt that Mr. Ebbers was the instigator of the scheme."

Defendants often receive reduced sentences for cooperating with prosecutors, but outside experts said Jones was particularly lenient with Sullivan, who faced a term of as many as 25 years.

"There is no question he caught himself a huge break," said Robert Ray, a white-collar defense lawyer at Pitney Hardin in Morristown, N.J.

"For him to come away with 20 years less than Ebbers is real good," added Julian Solotorovsky, a partner at Kelley Drye & Warren in Chicago who specializes in white-collar crime cases.

Judge Jones said another factor she considered was the ill health of Sullivan's wife, who suffers from severe diabetes. Sullivan must help care for their 4-year-old daughter, and a longer sentence would have had a "punishing effect on Mr. Sullivan's innocent family," the judge said.

If he earns time off for good behavior, Sullivan, 43, would serve about four years and three months. The final six months could be spent in a halfway house, Solotorovsky said. Sullivan is scheduled to report to prison on Nov. 11.

In a prepared statement is-sued before he was sentenced, Sullivan apologized for his "cowardly decisions" and said he was "ashamed and embarrassed." He refused to comment after the sentencing.

To settle an investor class-action lawsuit, Sullivan has agreed to forfeit his $11 million Florida estate, which includes a 30,000-square-foot mansion, as well as the $200,000 in his 401(k) retirement account. An attorney for Sullivan said he would effectively be left without assets, although some money would go into a trust fund to care for his daughter.

One former WorldCom employee, Henry J. Bruen Jr., said after court yesterday that he was satisfied with Sullivan's sentence because his testimony secured Ebbers' conviction. "I'm not thrilled, but it was a means to an end, and it was a just conclusion to this whole saga," Bruen said.

WorldCom was a telecommunications juggernaut during the late-1990s, but its revenue and earnings began to shrivel as the Internet boom faded.

Ebbers wanted to conceal the problems from investors, Sullivan testified at Ebbers' trial.

In testimony, Sullivan described how he systematically overstated WorldCom's revenue and understated costs by improperly listing expenses as capital expenditures.

Sullivan said he warned Ebbers in several one-on-one discussions that their actions were wrong. But he said his boss simply told him to "hit the numbers" that Wall Street analysts expected.

By mid-2002, an internal auditor discovered extensive bookkeeping errors, and the company collapsed into bankruptcy protection after the fudged accounting was revealed.

The company, since rechristened MCI Inc., is now being acquired by Verizon Communications Inc.

Ebbers, 63, is scheduled to begin serving a 25-year-sentence Oct. 12.

He maintains his innocence and is seeking to remain out of prison while he appeals his conviction.