The SEC filed civil fraud charges against WorldCom on June 26, claiming the firm had engaged in a concerted effort to manipulate its earnings in order to meet Wall Street targets and support its stock price.
Additionally, it claimed that the scheme had been "directed and approved by senior management", which suggested top executives were aware of it.
CEO "at the heart" of company's culture
The SEC report said:
“The fraud was implemented by and under the direction of WorldCom’s Chief Financial Officer, Scott Sullivan. As business operations fell further and further short of financial targets announced by Ebbers, Sullivan directed the making of accounting entries that had no basis in generally accepted accounting principles to create the false appearance that WorldCom had achieved those targets.
“In doing so he was assisted by WorldCom’s Controller, David Myers, who in turn directed the making of entries he knew were not supported.”
The SEC heavily blamed Ebbers for the scandal, saying he was "at the heart" of the company's culture and exerted much of the pressure to keep the fraud going for as long as it did.
The report said the fraud was easy to pull off because “it was apparently considered acceptable for the General Accounting group to make entries of hundreds of millions of dollars with little or no documentation beyond a verbal or an e-mail directive from senior personnel”.
A trial was held in 2005, where a jury found Ebbers guilty of fraud, conspiracy and filing false documents.
He was jailed for 25 years, but was released in December 2019 as a result of declining health.
He died in February 2020 aged 78.
Former CFO Scott Sullivan was also jailed for five years after pleading guilty and testifying against Ebbers.