Oklahoma Files Criminal Charges Against Ebbers, WorldCom - company founder Bernard J. Ebbers

Byline: Christopher Stern, Brooke A. Masters and Lois Romano

Oklahoma Attorney General W.A. Drew Edmondson today filed criminal fraud charges against WorldCom Inc. and six of its former executives, including company founder Bernard J. Ebbers.

"We allege the company and these six employees executed a scheme to artificially inflate the value of WorldCom stock and bonds by intentionally falsifying information filed with the Securities and Exchange Commission," Edmondson said. "Securities analysts and the investing public, including the State of Oklahoma, rely on this information when making investment decisions."

Edmondson said he charged the company and the employees because they all stood to profit from the scheme.

"It is rare that we name a company in a criminal complaint, but in this case it is justified," Edmondson said in a statement released this morning. "The decision to commit this fraud was a company decision. This is not some rogue employee trying to line his own pockets. This was a conscious decision made for the benefit of the company."

Ebbers has been under federal investigation for more than a year but before today had not yet been charged with any crimes related to WorldCom's accounting fraud. The company also had not faced any earlier criminal charges.

A source familiar with the pending charges said they emanate from a months-long investigation by the state attorney general's office and the Oklahoma securities office. But another source with knowledge of the case said it may be difficult for Edmondson to build a case because several of the executives directly involved in the fraud -- and whose testimony is likely to be needed to build the case -- have already reached separate deals with the federal government.

"There's been no coordination with the federal authorities who have been investigating for a year and a half. That includes the FBI, the SEC and the prosecutors," one source said.

WorldCom recently reached a $750 million agreement with the Securities and Exchange Commission to settle civil fraud charges. But the criminal charges would add to a host of continuing cases against WorldCom, including a recently opened federal investigation based on allegations by several of its major competitors that WorldCom for years avoided paying access fees to local carriers for connecting its long-distance calls.

WorldCom filed for bankruptcy protection last year after revealing that it was losing money during a three-year period when it claimed to be profitable. Ebbers has been criticized for creating a corporate culture that ultimately led to more than $11 billion in false accounting and is named in dozens of lawsuits filed by angry investors.

WorldCom has dismissed dozens of executives in the past year for their roles in the accounting fraud. In some cases, executives were directly involved. In other cases, executives were fired because they knew about the improper accounting but did not take steps to stop it. Of the five former WorldCom executives charged with fraud by federal officials, four have pleaded guilty. Former chief financial officer Scott D. Sullivan pleaded not guilty and is preparing for trial.

Reid H. Weingarten, Ebbers's attorney, declined to comment last night when news of the charges was first reported by the Wall Street Journal.

Edmondson has said Oklahoma's pension system lost more than $64 million in WorldCom-related investments. The state has also objected to WorldCom's plan to emerge from bankruptcy protection, saying it did not allow for financial claims by state and federal governments based on criminal cases against the company.

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