Two former senior officials of bankrupt telecommunications firm WorldCom Inc. were arrested and charged with securities fraud yesterday for their role in the $3.85 billion accounting scandal that has rocked confidence in corporate America.
Former WorldCom Chief Financial Officer Scott Sullivan and former Controller David Myers were charged with securities fraud, conspiracy to commit securities fraud, and making false filings with the Securities and Exchange Commission.
The two former executives were later released on bail -set at $10 million for Sullivan and $2 million for Myers. Both men had their passports seized and were given a series of travel restrictions.
Earlier in the day, the two men were led handcuffed into federal custody in downtown Manhattan just two days after President George W. Bush signed into law sweeping legislation designed at curtailing fraud in corporate America.
If convicted, the men could face a prison term of up to five years and a $250,000 fine on the conspiracy counts and 10 years and a $1 million fine on each of the fraud and false filings counts.
The two men surrendered to authorities at about 7 a.m. EDT (1100 GMT) yesterday. They have been investigated by the US Justice Department for their roles in improperly booking WorldCom routine expenses as capital spending.
WorldCom, the nation's No. 2 long distance carrier, was not charged in the criminal complaint filed by prosecutors in Manhattan federal court. The company was, however, sued previously by the SEC for alleged accounting fraud.
The complaint alleges that the two men were involved in an accounting scheme that began in early 2001 and lasted through June 2002 aimed at hiding expenses to artificially inflate earnings to meet Wall Street expectations.
As part of the scheme, they allegedly hid information from the company's external auditor, Andersen, and from the SEC.
WorldCom filed the world's largest bankruptcy in July as it buckled under $40 billion in debt and the accounting scandal. Yesterday, former US attorney general Richard Thornburgh was appointed examiner in the bankruptcy hearings.