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Bernie and Kristie Ebbers
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                 Sarbanes Oxley / Corporate Governance Commentary
Worldcom's Ebbers $30 million fine and 25 years in prison.

Convicted former CEO Bernie Ebbers of Worldcom (now known as MCI, Inc.) offered all his assets in a bid for leniency. Ebbers was convicted on March 15 by a federal jury for his role in the WorldCom fraud. Ebbers would have lost all his assets in the numerous civil lawsuits against him anyway so does anyone really think this is going to help him get a reduced prison sentence? I'm sure all the shareholders are looking for the maximum sentence. In this highly publicized case, I believe the judge will make an example of Bernie Ebbers and sentence him to at least 25 years in prison.

WorldCom shareholders who filed a class-action lawsuit against Ebbers would get 75% of the money. MCI Inc., would be entitled to the remaining 25%.


By handing over his entire fortune to settle civil claims, Ebbers hopes to get a lighter term when he appears in federal court for sentencing July 13. Prosecutors are reportedly seeking an 85-year term, essentially a life sentence. Ebbers was convicted for orchestrating an $11-billion accounting fraud at WorldCom.

Under the settlement negotiated by the U.S. attorney's office Ebbers would pay out $5 million immediately. He would then transfer all his other assets, estimated at $25 million to $40 million, into a trust. The trust would distribute the proceeds to shareholders and the company.

Most high profile senior executives being charged with accounting fraud to inflate earnings and drive up the value of stock options, have all been using the "I didn't know defense". What's interesting about this case, unlike the other executives from other firms, Ebbers never sold off any of his company stock. He simply continued to borrow money off the value of the stock. Ebbers apparently still owes $338 million that he borrowed from Worldcom.

At the peak of Worldcom's stock price, Ebbers was worth over $1 billion. If Ebbers was continuously inflating revenues, he had to know the stock would drop as soon as sales and earnings missed expectations. Most savvy executives would have sold off a portion of their stock to cash out. Even as he borrowed against his Worldcom stock, Ebbers failed to hedge against a falling stock price. Although, I did arrive at the same conclusion as the jury that convicted him, Ebbers may have in fact, really been a "clueless" executive.

Updates after July 11, 2005:

Courts approved the proposed settlement of civil lawsuits against Bernie Ebbers. Part of the settlement allows Bernie Ebbers' wife Kristie ebbers to retain a house in Mississippi, $50,000, her retirement account and some other undisclosed assets considered minor by the courts. Kristie Ebbers was never charged with any wrong doing. The Ebbers would have lost everything in the civil lawsuits anyway so Kristie may actually have walked away with more assets through this "settlement".

Updates after July 13, 2005:


As expected, Bernie Ebbers received a 25 year sentence at his hearing today.

Worldcom MCI: Director's Payoff Establishes New Legal Precedent.

 

2005 Nelson Chin.
To inquire about consulting or speaking engagements, e-mail: Nelson Chin
Other Commentaries:

Former Computer Associates CEO faces new indictment. Could auditors have detected the fraud ?

Adelphia and ex-CEO Rigas to settle fraud case.

Arthur Andersen Conviction Overturned: Too Little Too Late.


Worldcom's Ebbers faces $30 Million Fine and life in prison.


Russian Oil Tycoon Mikhail Khodorovsky: Guilty of Fraud and Victim of Politics?

Accounting Giant KPMG Probed for Unlawful Conduct.

Former CEO of HealthSouth Scrushy acquitted.


Former Tyco CEO Kozlowski convicted, faces 30 years.

Outgoing TOYS R US CEO's Favorite Toy? The Golden Parachute.

Sayanora Citigroup. Japan shuts down Private Banking Unit.

Heist at the Bellagio or plot twist for the New Ocean's Eleven sequel?

Eisner versus Ovitz. The Showdown in Tinseltown.


Marsh sinks deeper in insurance scandal.

Managers disconnected at Verizon.

What is Martha stuffing in her stocking this holiday season?

Is Apprentice Street Smart Candidate a College Graduate?


Outsourcing Employees - coming soon.

Samples of Written Policies:

Conflicts of Interest v1
Conflicts of Interest v2
Conflicts of Interest v3

Audit Committee v1

Regulatory:

Sarbanes-Oxley Act of 2002

Final Arthur Andersen Alumni Letter

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