The star witness against former WorldCom Inc. chief Bernard Ebbers was grilled by a defense attorney Wednesday about lies he told over and over to investors, his own board of directors and the U.S. government.
In cross-examining Scott Sullivan, who was finance chief under Ebbers, defense attorney Reid Weingarten appeared to be trying to paint him as a master of deception with a wizardly command of accounting.
Sullivan testified last week that Ebbers pressured him to carry out the improper accounting at WorldCom, a fraud that eventually totaled $11 billion and drove the company into bankruptcy.
On cross-examination, Sullivan said he deliberately misled WorldCom’s board in 2002 by trying to defend baseless accounting entries that covered up the company’s expenses.
Weingarten took on Sullivan’s central claim that Ebbers was commanding him to cook the books when he said each quarter that WorldCom had to “hit our number,” referring to Wall Street estimates.
“You took that, Scott Sullivan took that, as a marching order to go out and commit fraud?” Weingarten asked. “I took that as an order to make adjustments and hit the earnings-per-share number,” Sullivan answered.
The cross-examination represents a crucial moment in the trial because Sullivan is the only witness to directly link Ebbers to the massive fraud at WorldCom. He has pleaded guilty in the case and hopes to win a lighter sentence for cooperating with the government. The defense aims to show Sullivan is willing to tell the government what it wants to hear.
Swartz ordered loans forgiven
Tyco International Ltd.’s former head of finance testified that he was directed by former finance chief Mark H. Swartz to forgive millions of dollars in company loans to Swartz and former Chief Executive L. Dennis Kozlowski in 1999 and 2000.
Mark Foley, the conglomerate’s former senior vice president of finance, said he first was directed by Swartz in August 1999 to forgive $38.5 million in loans to Kozlowski, Swartz and Barbara Jacques, a marketing manager at the company.
Almost a year later, Swartz was one of several executives who informed him that the company was forgiving loans to “30 to 40” employees as a bonus, including more than $48 million in loans and payments to cover taxes on that loan forgiveness to Kozlowski and Swartz.
Prosecutors allege that Kozlowski and Swartz granted themselves millions of dollars in other unauthorized compensation while working as Tyco’s top executives. Kozlowski and Swartz are charged with grand larceny, securities fraud and other crimes. Their first trial ended in a mistrial in April.
Scrushy unfazed by `phony’ records
Punctuating potentially damaging evidence against Richard Scrushy, a former aide testified that the fired HealthSouth Corp. CEO wasn’t shocked when he heard a reference to “phony financial statements” in a secretly recorded conversation. The testimony by former HealthSouth finance chief Bill Owens, a key prosecution witness, came on his 11th and final day on the stand.
Justice Department attorney Richard Wiedis asked about a recording from March 2003 that jurors heard previously. In the recording, Owens told Scrushy that Owens’ wife was worried he would go to prison for signing “phony financial statements.”
“After you used the words `phony financial statements,’ did the defendant act surprised?” Wiedis asked. “No, he didn’t,” said Owens, who has pleaded guilty in the case.
Federal prosecutors claim the statement about phony reports and others captured on recordings made by Owens for the FBI show Scrushy was at the heart of a scheme to overstate HealthSouth earnings by $2.7 billion to make it appear the company was meeting Wall Street forecasts.
