It was 1999. I was sitting in the office of my big-time broker. "It's unreal," he said into the receiver. On the other end was rock star CEO of WorldCom, Bernie Ebbers, who had just scored a quick fix on an IPO.
Yes, those were crazy times. It was as though everyone had the Midas touch.
After the call, the broker listened to my 10-minute pitch about my new company and, on the spot, wrote me a $50,000 check as an investment.
The biggest beneficiaries of this incredible burst of wealth were those who understood the realities of Wall Street. And, no doubt, Ebbers was a very keen student. A common debate is the extent to which Ebbers was indeed well-versed in the ways of Wall Street. But as an outside observer, it seems obvious to me that he knew enough to hire Scott Sullivan, an individual who was very well-versed regarding the ins and outs of the Street.
When Ebbers came on board LDDS (the original name for WorldCom) in 1985, the company was a small player in the fast-growing market for long-distance service. True, he could grow organically, but this way would prove too slow for Ebbers.
So, in the late 1980s, he did a reverse merger, which is just a back-door way of becoming a public company. Thus, Ebbers suddenly found himself in a position to buy companies with little cash. Instead, he could use his stock as currency for deals.
Ebbers also knew that, in order for his plan to work, he would need a growing stock price. So CEO and company leveraged Wall Street. Ebbers paid investment bankers large fees to structure deals, as well as to finance his company with equity and debt offerings.
By spreading fees around Wall Street, Ebbers was able to get analysts to cover his company. Needless to say, there were many "buy" recommendations on the stock.
It worked flawlessly -- that is, until the economy slowed down, the stock market went into bear mode, and the telecom industry imploded. The WorldCom architectural masterpiece suddenly became as flimsy as a house of cards.
Unfortunately, instead of facing reality, Ebbers allegedly engaged in massive accounting fraud. But such things only delay the inevitable, and the company finally went bankrupt in 2002. About $180 billion in shareholder value was entirely wiped out.
So why not count your losses and start over honestly instead of engaging in a scam? How could it be possible to hide an $11 billion accounting manipulation? What was Ebbers thinking?
In part, he may have bought into the longtime perception in corporate America that the penalties for white-collar crime are relatively minor, provided you get busted at all. And even if they throw the book at you, corporate criminals get VIP treatment at the cushiest of federal prisons, right?
After all, the most well-known white-collar criminal back in the 1980s, Michael Milken, only served 22 months in prison. And when he was released, he was still on the billionaire's list.
Well, this no longer seems to be the case. As we saw yesterday, Ebbers received a 25-year sentence (and there is no parole in the federal system). What's more, this doesn't seem to be an anomaly. There have recently been other tough sentences for corporate crimes. A former Dynegy exec got 24 years, and the founder of Adelphia, 80-year-old John Rigas, got 15 years.
Perhaps the high-profile corporate scandals of the past few years have finally brought some justice to those who commit corporate fraud and steal money from shareholders. It's about time a clear message was sent. Hopefully, many CEOs will now think twice before engaging in illicit conduct. One has to wonder, though -- did it never occur to these people that the proverbial buck would eventually stop?
Fool contributor Tom Taulli does not own shares of any of the companies mentioned in this article.
