Two former accountants at WorldCom took the stand in Federal District Court in Manhattan in the criminal trial of the company's former chief executive, Bernard Ebbers.
Ebbers is accused of overseeing the $11 billion fraud at the company, which filed for the largest bankruptcy in history in 2002 and emerged from Chapter 11 last year as MCI.
Former accountant Betty L. Vinson testified late last week that she made false entries, quarter after quarter, from 2000 to 2002, including some numbers that she said she pulled "out of the air," according to a report by the Associated Press. Vinson also said that she drafted a resignation letter in 2000, but stayed with the company, and took her concerns in October 2000 to chief financial officer Scott Sullivan, who told her that Ebbers knew that the accountants were unhappy with what they were being asked to do, according to the report.
"Scott said Bernie didn't want to lower third-quarter expectations, so that we needed to make the entry," Vinson reportedly said. "He told us not to jump out of the plane, hang in there, help him get through the quarter."
The same day, former accountant Mark Abide recounted being instructed to chalk up billions of dollars in assets that he had never heard of. According to the AP report, Abide never implicated Ebbers and said under cross-examination that he believed Sullivan was ordering the entries.
Abide, who said he was "shocked," said he was asked repeatedly in 2001 to update WorldCom asset sheets to include unsubstantiated entries - sometimes more than $700 million a quarter.
Their testimony in Ebbers' trial comes on the heels of the collapse of a $54 million settlement by 10 former WorldCom directors. The settlement -- which fell apart last week when the plaintiffs pulled out after New York district judge invalidated a key component of the agreement -- had called for the 10 former WorldCom board members to pay $54 million, including $18 million of their own money, to settle a class-action suit brought by investors who lost billions when the telecommunications giant collapsed amid one of the largest accounting scandals in history.
Judge Denise Cote rejected a provision of the agreement that would have limited the ability of the non-settling parties to reduce the amount that they would have to pay should a jury find them liable. New York State Comptroller Alan G. Hevesi, lead plaintiff in the class-action lawsuit, said that the settlement was terminated "because of the potential impact on the amount other defendants might pay if the suit is successful."
"The so-called 'ability-to-pay' provision at issue was a necessary part of the settlement ... so that any judgment we obtain on behalf of WorldCom investors at trial against the remaining defendants, including the investment banks and Andersen, would not be reduced disproportionately when compared to the amounts that the settling director defendants could afford to pay to the class in their settlement," Hevesi said last week.
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