Former WorldCom CEO Bernie Ebbers dies

78-year-old Ebbers made WorldCom one of the world's largest telecoms company - committing one of the world's largest accounting frauds in the process

Bernie Ebbers, the former CEO of WorldCom, has died at the age of 78. Ebbers, a former milkman, led WorldCom from 1985, when he was appointed CEO, until 2002. Shortly after his resignation, an $11 billion accounting fraud was uncovered.

Edmonton, Alberta-born Ebbers was imprisoned for 25 years in September 2006 over the accounting fraud. He was released early in December 2019 on the grounds of ill-health.

WorldCom had been known as Long Distance Discount Services (LDDS) when he took over, operating in the newly liberated market for long-distance telephony services following the break-up of the AT&T telecoms monopoly.

Ebbers led the company on a string of mergers and acquisitions, changed the company's name to LDDS WorldCom in 1995, subsequently becoming just WorldCom, and relocated the company to Clinton, Mississippi.

However, the first acquisition of Ebbers' reign wasn't until 1992, when he fought off much larger rivals Sprint and AT&T to acquire Advanced Telecommunications Corporation for $720 million. This was followed by a string of big-money buys.

I just want you to know you aren't going to church with a crook

These included Metromedia Communication in 1993; Resurgens Communications Group, also in 1993; IDB Communications Group in 1994; Williams Technology Group in 1995; MFS Communications in 1996; and, biggest of all, MCI in 1998.

At the time, the MCI deal was one of the biggest mergers in corporate history at $37 billion, fighting off BT in the process. BT had lined up a $20 billion deal before WorldCom swooped, forming MCI WorldCom in the process after its acquisition was completed.

In 1999, Ebbers pursued an even bigger deal - the $129 billion merger of MCI WorldCom with rival Sprint. However, reflecting how large the company had become, that deal floundered due to opposition from antitrust regulators in both the US and European Union.

No one will find me to have knowingly committed fraud

In total, WorldCom had been built on the back of some 60 acquisitions. But all of that deal-making had left the company exposed to the dot-com crash of 2000 and the economic recession of 2000-2002.

From around 1999, Ebbers, his CFO Scott Sullivan and a number of other senior WorldCom executives had adopted a number of fraudulent accounting methods to falsely inflate the company's earnings. This enabled the company to report pre-tax profits in 2001, for example, when it ought to have reported a loss.

One of the drivers behind the accounting fraud had been personal: Ebbers had also used his stock holdings in WorldCom to raise funds for a number of other businesses, and he was therefore exposed to margin calls as WorldCom's share-price collapse gathered pace.

Initially, he persuaded the board of the company to provide loans and guarantees of $366 million to cover his margin calls - the board no doubt agreeing as the sale of a substantial amount of stock owned by the CEO would cause the company's stock price to fall further.

But with $28 billion in debts, $4.5 billion of which would be maturing in the near future, multi-billion-dollar asset write-downs, and declining profits and cash flow, speculation spread that WorldCom would be forced into bankruptcy protection. On 29^th April 2002, Ebbers resigned.

The accounting fraud was uncovered within months of his departure as the result of an investigation instigated by his successor, former UUNet CEO John Sidgmore. Initially, it was estimated at $4.5 billion, but more in-depth investigations increased the figure to $11 billion.

When the allegations first surfaced, Ebbers told the congregation at his local church that he was completely innocent. "I just want you to know you aren't going to church with a crook," he said. "No one will find me to have knowingly committed fraud."

Ebbers was charged by Federal authorities with security fraud and conspiracy charges on 2^nd March 2004 in an indictment that accused him of "knowingly and consistently" manipulating the company's financial results.

The indictment was extended with a further nine charges in May that year. Ebbers was found guilty on all counts on 15^th March 2005 and, after his appeal failed, inmate #56022-054 drove himself to jail on 26^th September 2006. CFO Scott Sullivan, meanwhile, was sentenced to just five years in prison.

Meanwhile, WorldCom filed for Chapter 11 bankruptcy protection in July 2002, and the post-bankruptcy company, renamed MCI, was acquired by Verizon Communications for $7.6 billion.