Names in the News

Ebbers Convicted

A federal jury in New York convicted Bernard Ebbers in a fraud that wiped out $100 billion in stock value at WorldCom, the company he headed.

WorldCom disclosed the $11 billion accounting fraud on June 25, 2002.

Now, following the March jury verdict, Ebbers is facing the rest of his life in prison.

After a six week trial and eight days of deliberation, the jury found Ebbers guilty on all nine counts brought against him, including securities fraud.

Ebbers took the stand in his own defense, but it didn’t help his cause. The jury did not believe him when he said that he knew nothing of the massive fraud that was taking place right under his nose.

Scott Sullivan and the other four former WorldCom executives who pled guilty and cooperated with the federal probe of Ebbers are now hoping federal prosecutors will urge the judge to sentence them leniently.

“Fraud at WorldCom extended from the middle-management levels of this company, all the way to its top executive,” said U.S. Attorney General Alberto Gonzales.

He added, “The President’s Corporate Fraud Task Force will continue to work to ensure justice for the workers and shareholders who lost billions of dollars to this fraud. We will also continue to work with those corporate leaders and CEOs whose exemplary ethical standards and transparent business models have helped build and fortify a nation’s trust in our economy.”

However, Charlie Cray of the Center for Corporate Policy — a project co-sponsored by an affiliate of Multinational Monitor — says that the Corporate Fraud Task Force is now little more than a webpage and a compilation of mostly uncoordinated Justice Department activities that would be underway whether or not they were said to be part of the task force’s work product.

Drug Agency Defrauded

Corporate crime is undermining the federal government’s effort to curtail illegal drug use.

Or so it appears after Raymond Simko, the former New York media executive of the giant ad agency Ogilvy and Mather, pled guilty in March in Manhattan federal court to conspiring to defraud the federal government, file false claims and make false statements.

Federal officials alleged that Simko participated in an extensive scheme to defraud the government by inflating the labor costs that Ogilvy and Mather had incurred while working under contract for the Office of National Drug Control Policy (ONDCP).

The ONDCP is a component of the Executive Office of the President, and was responsible for conducting the “National Youth Anti-Drug Media Campaign.”

In December 1998, Ogilvy and Mather was awarded a cost-plus-fixed-fee contract for the media campaign. Under the contract, the ad agency would be paid for its actual costs plus a fixed fee negotiated at the outset of the contract.

In the summer of 1999, certain of Simko’s co-conspirators learned that the labor billings on the contract were running approximately $3 million less than what Ogilvy and Mather had anticipated.

After recognizing this shortfall, from September 1999 through April 2000, Simko, along with his co-conspirators, schemed to fraudulently inflate the number of hours that Ogilvy employees had worked on the ONDCP contract, including by submitting false timesheets.

Simko faces a maximum sentence of five years in prison. His plea follows the convictions after trial of two other Oglivy and Mather executives.

Time to Pay

Without admitting or denying wrongdoing, Time Warner in March agreed to pay $300 million to settle allegations that it overstated its online advertising revenue and the number of its Internet subscribers.

Time Warner agreed to restate its historical financial results to reduce its reported online advertising revenues by approximately $500 million (in addition to the $190 million already restated) for the fourth quarter of 2000 through 2002 and to properly reflect the consolidation of AOL Europe in the company’s 2000 and 2001 financial statements.

“Our complaint against AOL Time Warner details a wide array of wrongdoing, including fraudulent round-trip transactions to inflate online advertising revenues, fraudulent inflation of AOL subscriber numbers, misapplication of accounting principles relating to AOL Europe, and participation in frauds against the shareholders of three other companies,” says Stephen Cutler, enforcement chief at the Securities and Exchange Commission (SEC).

“Some of the misconduct occurred while the ink on a prior SEC cease-and-desist order was barely dry,” says Cutler.

Cutler’s assistant enforcement chief, James T. Coffman says Time Warner’s accountants are not off the hook. “Accountants are gatekeepers to the capital markets. As our investigation continues, we will be turning our attention to those primarily responsible for the company’s fraud and improper reporting.”

— Russell Mokhiber