Is claiming ignorance a good defense?

Ebbers Testifies He Knew Little About How WorldCom Worked
By KEN BELSON

Published: February 28, 2005


Bernard J. Ebbers, the former WorldCom chief executive once hailed as one of the most brilliant telecommunications entrepreneurs of all time, said today before a packed courtroom in Manhattan that he knew little about the technology that WorldCom sold and even less about the company's accounting.

"I know what I don't know and to this day, I don't know about technology and I don't know about finance and accounting," Mr. Ebbers said in testimony at his criminal trial in Federal District Court.

"But I focused on the area I thought I could handle," he added, referring to his role managing WorldCom's salesmen. Mr. Ebbers sought to paint his role as largely that of "coach" for the telecommunications carrier that at its peak was worth more than $100 billion in stock market value.

Prosecutors contend that he orchestrated an elaborate $11 billion fraud that led to the biggest corporate bankruptcy in history and toppled the company he helped build from scratch.

The folksy innocence Mr. Ebbers displayed on the stand was part of the defense's effort to cast him as someone who earnestly built WorldCom from the ground up, but who relied on others as the company grew from a small regional reseller of phone services to one of the largest companies in American history.

Mr. Ebbers said knew little about how the company's financial experts did their jobs, and he was unaware when they started hiding billions of dollars in expenses to mask the company's deteriorating financial condition.

Under questioning by his lawyer, Reid Weingarten, Mr. Ebbers said he was wholly ignorant about accounting in general. He also testified that he did poorly in college and that his "marks weren't too good."

Mr. Ebbers, who is accused of fraud, conspiracy and filing false financial reports, is not the only fallen corporate titan who - after being paid hundreds of millions of dollars for running a multibillion-dollar company - has fallen back on the legal defense that he was completely in the dark about what was happening in his company.

Richard M. Scrushy, the former chief executive of HealthSouth on trial now in Birmingham, Ala., for fraud, has adopted basically the same defense. Kenneth L. Lay, the former chief executive of Enron, is expected to use a similar defense when his trial begins next year.

But the Ebbers trial is perhaps the most vivid illustration of the "Sergeant Schultz" defense at work, and it stands in contrast to Mr. Ebbers's uncanny ability to win the confidence of Wall Street and investors in his drive to expand the company. Mr. Ebbers was intimately involved in the company almost from its beginnings as tiny reseller of long-distance phone service in 1983. He was at the center of dozens of mergers and acquisitions that turned his company into a telecommunications behemoth.

In most criminal trials, testifying in one's own defense is risky because that allows the prosecution to bring in other potentially damaging evidence. But Mr. Ebbers took the gamble because so much of the prosecution's case rests on the uncorroborated testimony of its star witness, Scott D. Sullivan, WorldCom's former chief financial officer.

In his seven days on the stand, Mr. Sullivan said he told Mr. Ebbers repeatedly about WorldCom's deteriorating financial condition and how questionable accounting maneuvers could be deployed to pump up artificially the company's revenue and profits.

Mr. Sullivan said Mr. Ebbers ordered him to doctor the company's books. Mr. Ebbers painted a completely different picture. He denied being told by Mr. Sullivan about fraudulent accounting. Under questioning from his lawyer, Mr. Weingarten, Mr. Ebbers said over and over that Mr. Sullivan never told him his accounting changes "weren't right" and he did not recall conversations that Mr. Sullivan said they had.

"He had never told me he made an entry that wasn't right," Mr. Ebbers said. "If he had, we wouldn't be here today."

Mr. Ebbers also did not recall whether Mr. Sullivan was at a dinner at Morton's restaurant in Washington in March 2001. According to Mr. Sullivan, it was at that dinner that he told Mr. Ebbers about an effort to reclassify certain costs as long-term expenses instead of continuing expenses - a central element of the accounting fraud.