Big surprise. Bernard Ebbers, the CEO who presided over the catastrophic meltdown at WorldCom -- reborn as MCI (NASDAQ:MCIP) -- says he knew nothing about the massive accounting fraud.
It's all "shucks" and "simple country boy" today, as Bernie and his lawyers trotted out his life's history. Funny, looking back at the company's statements, I see little mention of the "virtues" they're flogging today: flunking out of college, coaching hoops, delivering milk, running motels, and taking charge of one of the world's largest enterprises despite having no understanding of bookkeeping. Bernie never took accounting, they say. He never had a hand in working up the numbers, he claimed. This, despite testimony from former finance head Scott Sullivan that Ebbers told him MCI had to "hit the numbers."
But maybe we should cut Bernie some slack. After all, he's had a tough few years since 2000, when the aw-shucks milkman was paid $11 million and then some. It is possible that Sullivan, a fresh-faced, 30-something number cruncher, came up with these schemes entirely on his own. And it's possible that the members of the do-nothing MCI board paid up all that money to settle a shareholder class-action suit just because they're such great souls.
But if you believe that, I have some other business deals to discuss with you. How about lovely acreage in Florida?
If you're looking for motives for keeping the stock afloat through bogus bookkeeping, no one had a better reason than Ebbers. At the end of fiscal 2001, he still held more than 11 million MCI options.
As for the defense's hang-dog tales about the fact that Ebbers wasn't selling his stake in the company -- sheer nonsense. He didn't sell because he was trying to have his cake and eat it, too. When he borrowed from the bank against his MCI holdings and that didn't work out, he turned to the company itself for $150 million in loan guarantees. And when that wasn't enough, the company loaned him $165 million. How was he going to pay this all back? Why, with the WorldCom stock that the company was giving him. Trouble was, by 2002, it was fast becoming worthless.
Do these sound like the financial maneuvers of a simple bumpkin who knows nothing about creative number crunching? Let's hope that the jury doesn't buy it either.
For investors, the lesson is simple. The empire's last proxy statement is a stark lesson in the kind of abject corporate governance that any Fool should avoid. It's no coincidence that major financial meltdowns so often walk hand in hand with incredible sweetheart deals. The good news is this: These characters usually leave a trail of slime that's easy to follow -- if you wish to look. The bad news: Too may investors don't seem to care as long as they're getting a share.
For related Foolishness, see:
- What's that smell? Ebbers did it.
- Here's how to learn from the looting.
- The good thing about America? There are ways to profit after the carnage.
- Lately, MCI's been the most popular debutante at the cotillion.
- The board took some blame, so why not Bernie?
Seth Jayson loves the proxy statement much more than the income statement. At the time of publication, he had no positions in any company mentioned. View his stock holdings and Fool profile here. Fool rules are here.
