Posted on 08/27/2003 6:39:52 PM PDT by Orange1998
Oklahoma Charges MCI, Ex-CEO with Fraud Wednesday August 27, 6:45 pm ET By Ben Fenwick
OKLAHOMA CITY (Reuters) - The Oklahoma attorney general on Wednesday charged MCI, its former Chief Executive Bernie Ebbers and five others with violating state securities laws by knowingly giving false information to investors.
These are the first criminal charges filed against Ebbers and the telephone company, which became the largest bankruptcy in history last year amid an accounting scandal that has ballooned to $11 billion.
Other former executives, including former Chief Financial Officer Scott Sullivan, were previously charged by federal prosecutors. Sullivan also was named in the Oklahoma complaint.
The 15-count complaint in Oklahoma contends that the company, the legal name of which is WorldCom Inc.(Other OTC:MCWEQ.PK - News; Other OTC:WCOEQ.PK - News), and the former executives used deceptive measures to defraud investors, lied about the company's financial health and ran a business that operated as a fraud.
Oklahoma state pension funds lost $64 million in MCI's implosion, and state residents may have lost even more in their individual investments, Attorney General W.A. Drew Edmondson said. MCI has 2,000 employees in Oklahoma, and 55,000 workers worldwide.
"We allege the company and these six employees executed a scheme to artificially inflate bond and stock prices by intentionally filing false information with the Securities and Exchange Commission (News - Websites)," Edmondson said.
Reid Weingarten, a lawyer for Ebbers, said the Oklahoma complaint, which came on Ebbers' 62nd birthday, contained no specific evidence of wrongdoing by the former CEO. He said he expects that Ebbers will be fully exonerated. A lawyer for Sullivan was unavailable for comment. Sullivan has pleaded not guilty to federal criminal charges including securities fraud and conspiracy.
MCI, the No. 2 long-distance carrier based in Ashburn, Virginia, said it would cooperate fully with the Oklahoma attorney general, and said it does not believe the Oklahoma charges will affect its planned emergence from bankruptcy later this year. A hearing to weigh its reorganization plan is scheduled for Sept. 8.
NEW WRINKLES
Steve Thel, a professor at Fordham University School of Law, said the criminal case will complicate the bankruptcy process, which he said will hurt investors and benefit MCI's competitors.
Other recently emerged wrinkles also could complicate the company's future: a suspension from receiving new government contracts until its financial house is in order and charges by rival phone companies about improperly routing calls.
MCI has already settled federal civil securities fraud charges by agreeing to pay $750 million in cash and stock to shareholders and bondholders who lost some $200 billion.
The Oklahoma attorney general said other states may end up filing similar lawsuits down the road.
"I would be very surprised if Oklahoma remained the only state to file either criminal or civil actions against WorldCom and its officers. We just happen to be the first," Edmondson said.
Other former executives named in the complaint, which was filed in the Oklahoma County District Court, included former Controller David Myers, former Director of General Accounting Buford Yates, former Director of Management Reporting Betty Vinson, and former Director of Legal-Entity Accounting Troy Normand. Those four executives pleaded guilty to previous fraud charges.
The charges could bring up to 10 years in prison and fines of $10,000.
Edmondson said if the six former MCI executives fail to appear in Oklahoma in 10 days, he would pursue extradition to bring them within the jurisdiction of the state.
The U.S. Attorney's office in Manhattan, which already charged Sullivan and others former MCI executives in the accounting fraud, said it had not been contacted by Edmondson for evidence or access to witnesses.
"Competing interests can impede and delay the administration of justice. We are hopeful Oklahoma's action will not interfere" with the ongoing investigation of the accounting scandal and prosecution of several MCI executives, the U.S. Attorney's office said.
The Securities and Exchange Commission said it was disappointed it was not contacted by the Oklahoma Attorney General, adding that the agency's $750 million settlement with MCI was the largest ever under federal securities laws.
"Our goal and hope is to coordinate federal and state enforcement actions in a manner that results in the most effective and efficient enforcement possible for violators of our securities laws," the SEC said.
(Additional reporting by Paul Thomasch and Gail Appleson in New York, Jeremy Pelofsky and Tim Dobbyn in Washington)
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