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The Ebbers Sentence: You Decide

The trial of former WorldCom chief Bernie Ebbers will be talked about for years to come. But a debate rages over how much punishment he should receive for the nine counts of fraud in the $11 billion collapse of WorldCom.

The 63 year-old Ebbers now faces a maximum sentence of 85 years in the slammer, although his legal team have said that they will appeal last week’s verdict (see Ebbers Is Appealing).

In the meantime, the victims, WorldCom's investors, are still chasing down all the players that propped up WorldCom and its myth.

Late last week, New York's State Comptroller, Alan Hevesi, and WorldCom underwriter J.P. Morgan Securities agreed to a $2 billion settlement for the firm's role in the largest securities fraud class case action in history.

If the J.P. Morgan settlement and several prior settlements are approved by the courts, some $6,001,600,000 will have been recovered in settlements so far, Hevesi's office says.

The parties to the WorldCom class action suits are listed here.

So what exactly should Ebbers punishment be in all of this? Tell us your thoughts in the poll below:

Elsewhere in the the corporate courtroom, plenty of scandal cleanups continue to proceed.

Last year, for example, Computer Associates International Inc. (CA) (NYSE: CA)’s former CEO Sanjay Kumar and one-time head of worldwide sales Stephen Richards were indicted on securities fraud conspiracy and obstruction charges after an accounting scandal rocked the Islandia, N.Y.-based firm (see CA's Mea Culpa and Kumar Leaves CA).

If convicted on all counts, the former CA execs each face a maximum prison sentence of 100 years.

Jack Grubman, one of the most notorious figures in the telecom bubble burst, never spent a day in jail for his role as an investment banking liason to Worldcom. He was, however, permanently banned from the securities industry and was forced to pay a total of $15 million in his settlement (see Salomon Slammed in Settlement).

Former Global Crossing Holdings Ltd. chief Gary Winnick also never went to jail for his role in living large while leading his company to a crushing bankruptcy. He was ordered to pay $55 million of a $325 million settlement that was reached with Global Crossing investors and former employees. Nearly half of Winnick's settlement, though, was covered by insurance. But the Justice Department and the SEC did not file charges against Winnick himself.

And for those hunting for the next perp-walk, some famous alleged scandal ringleaders are set to stand trial.

Former Enron execs Ken Lay and Jeff Skilling are still waiting for their day in court, which many expect to come early in 2006. And the Securities and Exchange Commission (SEC) recently charged a number of former Qwest Communications International Inc. (NYSE: Q) execs with engaging in “a multi-faceted fraudulent scheme” designed to overstate the Denver-based carrier’s revenues between 1999 and 2002. These include the company’s former co-chairman and CEO Joseph Nacchio (see SEC Charges Former Qwest Execs).

Two former top executives at Tyco International Ltd. -- L. Dennis Kozlowski, the former CEO and Mark Swartz, the former CFO -- are now on trial for grand larceny, securities fraud, and a laundry list of crimes connected to their ex-employer (see Tyco Sues Kozlowski). The Associated Press reports that each man faces up to 25 years in prison for the most serious of the crimes, larceny.

Other telecom scandals of late, and their outcomes, include:



— Phil Harvey, News Editor, Light Reading and James Rogers, Site Editor, Next-Gen Data Center Forum

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lightreceding 12/5/2012 | 3:22:31 AM
re: The Ebbers Sentence: You Decide A. Stiffer sentences for fraud, insider trading, and other white-collar crimes.

It isn't that available penalties are too lenient. The problem is that prosecution is not probable. Too few of the guilty are charged and brought to trial. Even when charges are brought many times the company pays and the individual transgressor does not suffer. LetGÇÖs see more prosecutions for fraud. Then perhaps there will be a deterrent.
Belzebutt 12/5/2012 | 3:22:30 AM
re: The Ebbers Sentence: You Decide I recently read an article in Canadian Business Journal and the situation is even worse here. The corporate fraud division of the RCMP is badly understaffed and they just don't have the time and resources to handle all the cases.

To make things worse, they have to move very quickly for prosecutors to even bother taking the case to courst, and some judges are complete retards, one was even said in court "isn't insider trading a victimless crime?"
chetbr 12/5/2012 | 3:22:25 AM
re: The Ebbers Sentence: You Decide More to the point the BOD should also be held accountable. This would put a little more spine in their bracing the CEO when necessary
paolo.franzoi 12/5/2012 | 3:22:24 AM
re: The Ebbers Sentence: You Decide
Can we start with Lucent?

seven
DCITDave 12/5/2012 | 3:22:24 AM
re: The Ebbers Sentence: You Decide Interesting point... do you guys ever forsee a time when a BOD is jailed for negligence in dealing with a corrupt company management team?

ph
deauxfaux 12/5/2012 | 3:22:23 AM
re: The Ebbers Sentence: You Decide More and more good board candidates bow out every year because the costs, risks and penalties keep rising and rising. One person't stupidity is another's negligence, and there isn't an apparent end to either of these behaviours in humans. Sarbanes Oxley has given some people a security blanket, but has forced out lots of good board members who just don't need the headaches or liability of board service.

How many engineers would want to do their jobs if they could be thrown in jail for a series of mistakes that some trial lawyer paints as incompetance? What if the engineer only worked on the job for a day or two a month in his "spare time?" What if his compensation was a small fraction of what he made in a year? Not many people would take on a job like that, but that is what board work is like.

Boards hire, fire and supervise the CEO. Most of them are involved with evaluating senior management as well. But there are limits to what executives with "day jobs" can, and should do. CEOs are wrong some times, and Boards are too. All of this stops well short of criminal behaviour.

Criminals exist in every part of society, CEOs, ball players on steroids, bookeepers, engineers, doctors and lawyers. Unfortunately, the only people getting rich in the "blame game" are the lawyers.
Stevery 12/5/2012 | 3:22:22 AM
re: The Ebbers Sentence: You Decide How many engineers would want to do their jobs if they could be thrown in jail for a series of mistakes that some trial lawyer paints as incompetance?

The big difference is that BOD members are covered by D&O insurance. As long as there's nothing that ends up in a criminal court, they're covered.

So in answer to Phil, I think the answer is no: stupidity is not a prosecutable offense, which doesn't prevent me from agreeing with seven on the prior lu post.
lightreceding 12/5/2012 | 3:22:21 AM
re: The Ebbers Sentence: You Decide Lack of resources to prosecute is a big problem. Resources are focused where there is a public outcry and political gain. People don't understand corporate fraud, so corporate plunders operate largely free of prosecution.

From the nature of their actions it is obvious that management at Enron, Qwest and Lucent and others knew that they were committing fraud. You don't accidentally end up with warehouses full of unopened boxes of equipment or with your pockets full of pre IPO stock options. They just didn't expect to be investigated and prosecuted.

Prosecuting takes resources. Just look at the Qwest case. Years of investigation, thousands of pages of evidence and the case only slowly makes progress. Most of the time prosecutors have to focus on the cases where they get tipped off as in the Martha Stewart case where a witness came forward with the crucial evidence.

So far no one seems to be coming forward against Rich McGinn and others at Lucent and his sidekick Carly survived six years at HP and appears to be going on to something bigger.

Corporate criminals won't be checked unless the government does what it takes to go after them. People need to keep the pressure on government to fight corporate fraud and reward those who serve us well. And more people need to come forward and say what they know.
lightreceding 12/5/2012 | 3:22:21 AM
re: The Ebbers Sentence: You Decide Lack of resources to prosecute is a big problem. Resources are focused where there is a public outcry and political gain. People don't understand corporate fraud, so corporate plunders operate largely free of prosecution.

From the nature of their actions it is obvious that management at Enron, Qwest and Lucent and others knew that they were committing fraud. You don't accidentally end up with warehouses full of unopened boxes of equipment or with your pockets full of pre IPO stock options. They just didn't expect to be investigated and prosecuted.

Prosecuting takes resources. Just look at the Qwest case. Years of investigation, thousands of pages of evidence and the case only slowly makes progress. Most of the time prosecutors have to focus on the cases where they get tipped off as in the Martha Stewart case where a witness came forward with the crucial evidence.

So far no one seems to be coming forward against Rich McGinn and others at Lucent and his sidekick Carly survived six years at HP and appears to be going on to something bigger.

Corporate criminals won't be checked unless the government does what it takes to go after them. People need to keep the pressure on government to fight corporate fraud and reward those who serve us well. And more people need to come forward and say what they know.
paolo.franzoi 12/5/2012 | 3:22:21 AM
re: The Ebbers Sentence: You Decide
My take is that the BODs are supposed to be the voice of the shareholder. They are not the supervisor of the CEO from any other perspective. If they can not rationally act in the best interest of the shareholder, then we have a problem.

Let me skip Lucent for the moment and use say Sycamore as an example. It is great to have a lot of cash, but if I wanted to own cash I would have it not Sycamore stock (not that I own any). It is incumbent on the BoD to move the company, and if the current management team is incapable then they should replace them. If the BoD can not take competent action, the SEC (I guess - maybe DOJ?) should step in. But I see no momentum along that front. So, I am okay with messing up. But inaction across years? That rises to a level of incompetence that equates to criminal behavior. Why would the BoD do nothing in this case? There is no reasonable explanation, so the alternate is unreasonable behavior.

seven
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