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Bernard Ebbers, WorldCom CEO convicted in historic fraud scandal, dies at 78

Feb 04. 2020
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By The Washington Post · Harrison Smith 

Bernard J. Ebbers, a telecom executive who grew a small Mississippi firm into the Wall Street juggernaut WorldCom, only for its gains to be unmasked in an $11 billion corporate accounting scandal that landed him in prison and sent shock waves through the U.S. economy, died Feb. 2 at his home in Brookhaven, Mississippi. He was 78. 

Ebbers, who was convicted in 2005, had been released early from federal prison in December after serving more than 13 years of his 25-year sentence. In court filings, his lawyers and family said he suffered health problems that included macular degeneration, a heart condition and dementia. His family announced his death in a statement.

At 6-foot-4 and 220 pounds, Ebbers - also known as Bernie - was a swaggering figure in his industry, a former collegiate basketball player who became known as "the telecom cowboy" for wearing jeans, boots and a 10-gallon hat while working out of his corporate headquarters in Clinton, Mississippi. Using stock to fuel relentless acquisitions, he grew WorldCom into the country's second-largest long-distance provider by the time it peaked in 1999, with a market capitalization of about $185 billion.

It turned out that fortune was largely the result of outright fraud, which wiped out the portfolios of many employees and shareholders and drained billions of dollars from retirement accounts. The country's largest public pension fund, the California Public Employees' Retirement System, lost $565 million on WorldCom bonds and stock, according to a 2002 report in The New York Times.

The WorldCom collapse was the largest in a string of early 2000s corporate accounting and corruption scandals - including at Adelphia, Global Crossing, Enron and Tyco - and came to symbolize the excesses of the telecom and dot-com bubble at the close of the millennium. Ebbers, who denied playing any role in the accounting fraud, was among the most prominent executives convicted during that period and received the most severe sentence. (Former Enron chief executive Jeffrey Skilling was sentenced to 24 years, later reduced to 14, and released from federal custody last year.)

Constance Bagley, a legal scholar and senior research fellow at the Yale University's school of management, said Ebbers's prison sentence "obliterated" what is now known as the "aw shucks" defense, in which executives beg ignorance of accounting tricks or technological machinations used to justify bogus profits. 

"Before him," Bagley added, "CEOs often were able to get off the hook," notably by using a line of argument Ebbers deployed throughout his career. "The thing that has helped me personally is that I don't understand a lot of what goes on in this industry," he once told Time magazine. "To this day," he testified in court, "I don't know technology, and I don't know finance and accounting."

As chief executive, Ebbers purchased more than 70 telecom companies, a practice that led him to name his yacht the Aquasition. Originally known as Long Distance Discount Service (LDDS), his business took off after the Telecommunications Act largely deregulated the industry in 1996; the next year, it acquired MCI Communications for $37 billion, in what was reportedly the largest merger in U.S. history.

In 1999, WorldCom moved to scoop up Sprint as well. Competitors slashed prices and cut costs, laying off thousands of workers while struggling to keep pace with Ebbers's buying binge. But the Sprint merger was ultimately called off amid opposition from antitrust regulators and, in April 2002, Ebbers resigned while facing a Securities and Exchange Commission probe into WorldCom's support of more than $400 million in personal loans. 

The company's stock price had cratered, falling more than 90% even before June 2002, when WorldCom announced it had improperly accounted for $3.8 billion in expenses, a figure that nearly tripled as investigators continued to pore over financial statements. (Its statements were approved by outside auditor Arthur Andersen, whose reputation had already been tarnished by the Enron accounting scandal.) 

WorldCom filed for what was then the largest bankruptcy in U.S. history, since surpassed by Washington Mutual and Lehman Brothers during the 2008 financial crisis. The fraud revelations were widely credited with helping to spur the 2002 passage of the Sarbanes-Oxley Act, which instituted new corporate governance requirements and increased penalties for business fraud. 

Ebbers was indicted two years later, after several of his subordinates pleaded guilty to fraud. At age 63, he was convicted of securities fraud, conspiracy and filing false reports with regulators, after his former chief financial officer testified that Ebbers directed him to cook the books. 

Defense attorneys argued for leniency in sentencing, saying Ebbers was unfairly "transformed into a symbol of corporate corruption." But a New York federal judge seemed to side with former WorldCom employees such as Henry Bruen, who was invited to speak before Ebbers's 25-year sentence was imposed.

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

Bernard John Ebbers was born in Edmonton, Alberta, on Aug. 27, 1941. His father was a traveling salesmen and auto mechanic who moved the family to California and later New Mexico, where Ebbers attended school on a Navajo reservation.

He returned to Edmonton for high school and worked as a milkman and a bar bouncer before earning a basketball scholarship to Mississippi College, a private Baptist school in Clinton, where he received a bachelor's degree in physical education in 1967. 

Ebbers worked as a schoolteacher, managed a garment warehouse and began acquiring local motels, one of which included a long-distance telephone service as a sideline, according to a 2002 report in The Washington Post. It became LDDS, with Ebbers installed as chief executive in 1985. The company changed its name to WorldCom a decade later.

As he rose to international prominence, Ebbers maintained a low-key persona around Clinton, mowing his lawn, teaching Sunday school, frequenting the local diner and helping his brother on a cattle ranch. More quietly, he also acquired assets including a yacht-building business in Georgia, a ranch in British Columbia and a soybean farm in Louisiana, according to The Wall Street Journal.

Ebbers's marriages to Linda Pigott and Kristie Webb ended in divorce. Survivors include four daughters from his first marriage; a stepdaughter from his second; three brothers; a sister; 12 grandchildren; and a great-grandson.

In recent months, his family successfully petitioned for compassionate release, citing Ebbers's deteriorating health. In a statement circulated by his daughter Joy Ebbers Bourne, the family said they intended to advocate for other incarcerated people "deserving of compassionate release to their families." 

"Many stockholders and employees lost their investments in the fall of WorldCom. Many of our friends - and many in our family - did too," the statement said. "Thankfully, Judge [Valerie E.] Caproni agreed with us - keeping Dad in prison, especially in his unexplained and undiagnosed deteriorated condition, would not bring back anyone's investments. My family and I continue to pray for everyone affected by the fall of WorldCom."

 

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