August 12, 2005

Ex-WorldCom Officer Sentenced to 5 Years in Accounting Fraud

By JENNIFER BAYOT and ROBEN FARZAD

A federal judge sentenced Scott D. Sullivan, the former chief financial officer who acknowledged his leading role in WorldCom's $11 billion accounting fraud, to five years in prison yesterday - a fifth of what sentencing guidelines suggested and a striking example of the benefit of working with government prosecutors.

"Mr. Sullivan, you would have faced a substantial sentence had you not cooperated with the government," Judge Barbara S. Jones gently told him in United States District Court in Manhattan.

Federal prosecutors described Mr. Sullivan yesterday as crucial to the conviction of his boss, Bernard J. Ebbers, who, as WorldCom's founder and chief executive, was the bigger target in the government's prosecution.

With Mr. Sullivan, 43, as the government's star witness, Mr. Ebbers was found guilty in March of securities fraud, conspiracy and seven counts of filing false reports with regulators. Last month, he received a prison sentence of 25 years. He is appealing his conviction.

Like his boss, Mr. Sullivan could have received 25 years in prison. He had directed his subordinates to inflate revenues and hide expenses at WorldCom, once the country's second-largest phone carrier. When finally revealed, those misstatements amounted to the largest accounting fraud in history, and the scandal helped impel Congress to create far tougher corporate regulations.

The government's investigation into WorldCom effectively concluded yesterday with Mr. Sullivan's sentencing.

Mr. Sullivan was quiet and resigned as he received his punishment. He sounded contrite and nervous as he pleaded for leniency, and he hugged his mother for several moments after the sentencing.

"Every day I regret what happened at WorldCom," he told Judge Jones. "I violated the trust placed in me. My actions are inexcusable."

He continued, "I chose the wrong road, and in the face of intense pressure I turned away from the truth."

Judge Jones did reserve some harsh words for Mr. Sullivan, whom she described as the "day-to-day manager of the scheme at WorldCom" - someone who was "significantly more culpable" than the other managers who cooperated.

"In keeping WorldCom going," she said, "he was also preserving his $700,000 salary, $10 million bonus and stock options."

Legal experts said that the five-year sentence struck the right balance.

"To the potential Scott Sullivans of the world," said George B. Newhouse Jr., a partner at Thelen Reid & Priest in Los Angeles and a former federal prosecutor, the sentence sends the message that, "if you see the light and cooperate with the government, the government will use that cooperation to mitigate any fines or penalties."

At the same time, Mr. Newhouse added, "I think it still sends a very strong message of deterrence."

Mr. Sullivan will not be fined and will not have to pay any restitution beyond certain assets that he agreed to turn over last month. Judge Jones also agreed to recommend that he be sent to a minimum-security prison in Pensacola, Fla., near his home, and that he receive treatment for alcohol abuse. Mr. Sullivan's lawyer also asked for 90 days before his surrender, so that his client could arrange for child care at his home.

The prosecution readily agreed to those accommodations. "Without Mr. Sullivan's cooperation, it is likely that Ebbers would never have been brought to justice," David B. Anders, the assistant United States attorney who led the prosecution, told Judge Jones yesterday. "I think it's fair to describe his efforts as exceptional."

Mr. Sullivan's sentence is roughly in proportion to those given to some of his subordinates who also pleaded guilty. For instance, Buford Yates Jr., a WorldCom accounting director, and David Myers, the former comptroller, each faced five years of prison but instead received a year and a day.

Kirby D. Behre, a former prosecutor and a partner with Paul, Hastings in Washington, said: "The interesting thing is the huge disparity between what Ebbers gets for going to trial - 25 years - and what Sullivan gets for cooperating."

For Mr. Sullivan, Mr. Behre said, the reduction meant "get out of jail when you're 48, or get out of jail when you're almost 70 - that's a big difference."

Mr. Sullivan's sentence is also far more generous than the deal that Enron's former chief financial officer, Andrew S. Fastow, received in a plea bargain with the government last year. In an unusual agreement, Mr. Fastow agreed to a 10-year sentence even though the case against his former bosses, Kenneth L. Lay and Jeffrey K. Skilling, has yet to go to trial.

After pleading guilty to fraud, conspiracy and making false financial filings in March 2004, Mr. Sullivan proved "extremely forthcoming," the prosecution wrote in a letter to Judge Jones in July. He pointed out the significance of several documents that became crucial to the case and occasionally called with details he thought might be helpful.

"Sullivan provided useful information without minimizing the scope and seriousness of his own conduct or the conduct of others," the prosecutors wrote.

He did "homework" assignments to help with the investigation, they said, and he traveled to New York from his home in Florida to answer questions and review documents despite having to care for his wife, who has severe diabetes, and his 4-year-old daughter.

He pleaded for a lighter sentence yesterday to continue caring for them. "I ask for leniency so that the consequences of my behavior do not fall on my wife and daughter," he said to Judge Jones.

Mr. Sullivan testified for seven days in Mr. Ebbers's trial. He alone could describe conversations in which Mr. Ebbers instructed him to "hit the numbers," meaning the financial results that Wall Street analysts were expecting.

And last month, Mr. Sullivan agreed to sell a $10 million house he has been building in Boca Raton, Fla., and to give the proceeds to investors who sued over the fraud. He will also surrender about $200,000 in his 401(k) retirement account.

But Mr. Sullivan's payments and reduced sentence are probably cold comfort to WorldCom's investors, who lost tens of billions of dollars, and to its former employees, who lost their livelihoods as WorldCom entered bankruptcy protection in 2002.

"It was a mixed blessing, but a well-measured sentence," said Henry J. Bruen Jr., a former WorldCom salesman from White Plains who submitted a victim impact statement to the judge. Mr. Bruen said he had lost all of his savings, investments and medical benefits and some of his property since being laid off in early 2003.

After the hearing, by the courthouse steps, he reflected on the six-figure commissions he earned in the firm's heyday and commented on how much his life has changed.

But Gino Pescrilli, a former technician for WorldCom in Cleveland who was laid off in 2002 and has been doing contract work, said he was disappointed that Mr. Sullivan "only got five years."

"Since Sullivan was the C.F.O. and in charge of the bookkeeping, I think he should have gotten hammered just as well as Bernie did."
 
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