Two Former WorldCom Execs Arrested

August 1, 2002

NEW YORK — Two former top executives of bankrupt telecommunications firm WorldCom Inc. (WCOM) surrendered Thursday morning and were arrested for their role in the $3.85 billion accounting scandal that has rocked confidence in corporate America, according to the FBI.

Former WorldCom Chief Financial Officer Scott Sullivan and former Controller David Myers were being held at the FBI offices in lower Manhattan and are expected to be presented in Manhattan federal court later in the day.

"They are here and they are in custody," said FBI spokesman Jim Margolin.

A complaint, to be unsealed in federal court later Thursday, charges them with securities fraud and conspiracy, according to a law enforcement source, speaking to The Associated Press on condition of anonymity.

Sullivan and Myers were dismissed from WorldCom in June after the company admitted it falsely accounted for $3.8 billion in expenses, allowing executives to continue reporting profits when the company was actually losing money.

WorldCom, which owns MCI, the nation's second-largest long distance carrier, filed for bankruptcy under Chapter 11 on July 21, the largest such filing in U.S. history.

The scandal at WorldCom, coming after the collapse of energy trader Enron Corp., fanned a political firestorm that led to new legislation signed by President Bush on Tuesday that quadruples penalties for accounting fraud.

The Securities and Exchange Commission later that month filed civil fraud charges against WorldCom, citing "accounting improprieties of unprecedented magnitude."

The Justice Department has also considered taking the more drastic step of charging WorldCom as a corporation. A conviction of the long-distance phone company could drive it out of business.

U.S. Bankruptcy Judge Arthur Gonzalez approved $2 billion in financing to keep WorldCom operating as it reorganizes its finances. He also granted the Justice Department's request for an independent examiner to ensure an honest accounting of the company's value and investigate for mismanagement, irregularities and fraud.

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