A World of Its Own
The governance issues laid bare by WorldCom’s accounting fraud were also distinct. Two reports detailed the massive fraud perpetuated by former CEO Bernard J. (Bernie) Ebbers. One report was prepared for the WorldCom board of directors by the law firm Wilmer Cutler & Pickering. Richard Thornburgh, onetime attorney general in the Reagan and first Bush administrations, wrote the second report for the U.S. Bankruptcy Court in New York. “The fraud was the consequence of the way WorldCom’s chief executive officer, Bernard J. Ebbers, ran the company,” the report to the board read when released in 2003. “He was the source of the culture, as well as much of the pressure, that gave birth to this fraud.” Ebbers also received at least $175 million in personal loans that the board was never aware of and demanded that board minutes be sanitized to remove a bonus awarded to CFO Scott Sullivan that Ebbers overruled, apparently because he too was not receiving a bonus.
Both of the WorldCom reports detailed improper accounting, totaling more than $9 billion, which allowed the company to appear profitable when it was actually suffering losses. WorldCom filed for bankruptcy in July 2000, after the bulk of its securities violations had been revealed. Ebbers and Sullivan were convicted in 2005 of conspiracy, securities violations and filing false regulatory reports. Ebbers was sentenced to 25 years in prison, and Sullivan received a five-year sentence. The WorldCom board was found to be too passive, controlled by the proverbial imperial CEO. WorldCom’s audit committee, according to the Thornburgh report, didn’t require reports from the external auditor, and the reports it did receive from the internal auditor were filtered through management. As part of a settlement—and in what was considered unusual at the time—defendant directors agreed to pay an amount equal to 20 percent of their net worth. According to the WorldCom Securities Litigation website, outside directors paid an aggregate of some $20.25 million to the plaintiffs.
Where Are They Now?
Robert A. Belfer
The Texas oilman and former Enron board director was revealed as the “mystery” donor of $100 million toward a capital campaign at Cornell University. The Belfer Research Building at Weill Cornell Medical College is scheduled to open in 2014. (Yes, Sanford Weill, the former chairman and CEO of Citigroup, is the college’s namesake and chairman of its board of trustees.) Belfer serves as chairman of Belfer Management, overseeing his family’s investments in the energy, real estate and financial industries.
The founder and managing partner of hedge fund Kynikos (“cynic” in Greek) Associates, now one of the world’s largest investment firms specializing in short selling. He was among the first investors to warn of Enron’s downfall. In August, Forbes reported his firm manages $6 billion in funds. Forbes also noted that Chanos has been called the “Warren Buffett of short selling.”
Bernard J. Ebbers
The founder and CEO of WorldCom was sentenced to 25 years in prison for his role in the $11 billion accounting fraud. Ebbers, now 71, is imprisoned at the Oakdale Federal Correctional Complex in Louisiana. He was named the 10th most corrupt CEO of all time by Time in 2009.
Andrew S. Fastow
The CFO who masterminded the convoluted financial schemes and stole tens of millions of dollars from Enron was convicted and served a six-year sentence. “What I did was reprehensible, and it is not easy to look at yourself and to recognize that about yourself and to admit it. And it took me a long time to do that, and some days—some days it’s still hard to do that. I’ve destroyed my life. All I can do is try to take what’s left, ask forgiveness, and be the best person I can be,” Fastow said during testimony. He was released from federal prison on Dec. 16, having served six years of a 10-year sentence, and is now on probation. He has spoken to at least two university classes on ethics since gaining his freedom.
The chairman of the Federal Reserve was originally appointed to the post by President Ronald Reagan and reappointed by George H. W. Bush and William Clinton. In testimony before a congressional committee in 2002 on the condition of the economy in the aftermath of the accounting scandals and the 9/11 terrorist attacks, Greenspan said: “I’ve served on too many audit committees to know that, even though I would consider myself independent, I would consider myself knowledgeable, I did not know what questions to ask the chief financial officer during meetings to find out what is it that conceivably is going wrong in the corporation, and he wasn’t about to tell me. So that there was a very difficult problem that one confronts.” Greenspan is an author and advisor.
Richard L. Grubman
The founder of hedge fund Highfields Capital was famously called an “asshole” by Jeff Skilling during a conference call when he asked the Enron CEO to produce a balance sheet. Grubman founded Highfields in 1998 with Jonathan Jacobson, who previously worked at Harvard Management Co., which reportedly provided $500 million of the $1.5 billion Highlands raised in 1998. Absolute Return + Alpha reports that in 2011 the hedge fund managed some $10 billion.
Dr. Robert K. Jaedicke
The sixth dean of the School of Business at Stanford, Jaedicke served on the Enron board and chaired the audit committee from 1993 until 2000. At a hearing on Feb. 7, 2002, before the House Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, he said: “The oversight function of the committee depends on the full and complete reporting of information to it. Without full and accurate information, an audit committee cannot function.”
John Mendelsohn, M.D.
The president of University of Texas M.D. Anderson Cancer Center, which had received nearly $1.6 million in donations from Enron and related entities since 1985, the year his predecessor, Charles A. LeMaistre, became an Enron director. Mendelsohn is the co-director of the new Sheikh Khalifa Bin Zayed Al Nahyan Institute for Personalized Cancer Therapy at the Anderson Cancer Center, where he was president from 1996 to 2011. He has been a member of Merrimack Pharmaceuticals’ board of directors since June 2012.
Jeffrey K. Skilling
The president and CEO of Enron was tried and convicted in 2006 of 19 counts that included conspiracy and securities fraud. The U.S. Supreme Court later invalidated one of the theories underpinning Skilling’s conspiracy conviction and instructed an appeals court to review the case again. On April 16, 2011, the U.S. Fifth Circuit of Appeals upheld his conviction. Prisoner 29296-179 continues to serve a 24-year sentence at the Federal Correctional Institute Englewood in Littleton, Colo., according to the Department of Justice website.
Scott D. Sullivan
The chief financial officer of WorldCom was released on probation from prison in 2009 after serving four years of a five-year sentence. Sullivan pleaded guilty to securities fraud and was a major witness who testified against CEO Bernie Ebbers.