Subject - Ethics and Governance

Read the WorldCom Case reproduced below and answer the following questions. 1. What deficiencies are evident in the professionalism of the professional accountants associated with WorldCom? Consider separately: a. Financial statement preparers b. Internal auditors c. External auditors. 2. What governance deficiencies are evident at WorldCom? Explain each deficiency and indicate how it should be fixed.

WORLDCOM CASE for Question 3 WorldCom, Inc., the second largest US telecommunications giant and almost 70% larger than Enron in assets, announced on June 25, 2002 that it had overstated cash flow by $3.8 billion. This came as a staggering blow to the credibility of capital markets. WORLDCOMS ACCOUNTING MANIPULATIONS WorldCom's accounting manipulations involved very basic, easy-to spot types of fraud. Overstatements of cash flow and income were created because one of WorldCom's major expenses, "line costs" - "fees paid to third party telecommunication network providers for the right to access the third parties networks were accounted for improperly. Essentially line costs that should have been expensed thus lowering reporting income, were offset by capital transfers or charged against capital accounts, thus placing their impact on the balance sheet rather than the income statement. In addition, WorldCom created excess reserves or provisions for future expenses, which they later released or reduced thereby adding to profits. The manipulation of profit through reserves or provisions is known as "cookie jar accounting. The aggregate overstatement of income quickly rose to more than $9 billion by September 19, 2002 for the following reasons: $3.85 billion for improperly capitalized expenses, announced June 25, 2002 $3.83 billion for more improperly capitalized expenses in 1999, 2000, 2001, and the first quarter of 2002, announced on August 8, 2002 $2.0 billion for manipulations of profit through previously established reserves, dating back to 1999 Ultimately, the WorldCom fraud totaled $11 billion. Key senior personnel involved in the manipulations at World Com included: Bernard J. Ebbers, CEO Scott D. Sullivan, CFO Buford Yates, Jr, Director of General Accounting David F. Myers, Controller Betty L. Vinson, Director of Management Reporting, from Jan. 2002 Troy M. Normand, Director of Legal Entity Accounting, from Jan. 2002 According to SEC's Complaint against Vinson and Normand: . . . **4. World Com fraudulently manipulated its financial results in a number of respects, including by improperly reducing its operating expenses in at least two ways. First, World Com improperly released certain reserves held against operating expenses. Second WorldCom improperly re- characterized certain operating costs as capital assets. Neither practice was in conformity with generally accepted accounting principles ("GAAP"). Neither practice was disclosed to WorldCom's investors, despite the fact that both practices constituted changes from WorldCom's previous accounting practices. Both practices artificially and materially inflated the income WorldCom reported to the public in its financial statements from 1999 through the first quarter of 2002. 5. Many of the improper accounting entries related to WorldCom's expenses for accessing the networks of other telecommunications companies ("line costs"), which were among WorldCom's major operating expenses. From at least the third quarter of 2000 through the first quarter of 2002, in a scheme directed and approved by senior management, and participated in by VINSON, NORMAND and others, including Yates and Myers, World Com concealed the true magnitude of its line costs. By improperly reducing reserves held against line costs, and then after effectively exhausting its reserves-by re-characterizing certain line costs as capital assets, World Com falsely portrayed itself as a profitable business when it was not, and concealed the large losses it suffered. WorldCom's fraudulent accounting practices with respect to line costs were designed to and did falsely and fraudulently inflate its income to correspond with estimates by Wall Street analysts and to support the price of WorldCom's common stock and other securities. 6. More specifically, in the third and fourth quarters of 2000, at the direction and with the knowledge of WorldCom's senior management, VINSON, NORMAND and others, by making and causing to be made entries in WorldCom's books which improperly decreased certain reserves to reduce WorldCom's line costs, caused WorldCom to overstate pretax earnings by $828 million and at least 5407 million respectively. Then, after World Com had drawn down WorldCom's reserves so far that the reserves could not be drawn down further without taking what senior management believed was an unacceptable risk of discovery, VINSON, NORMAND and others, again at the direction and with the knowledge of senior management, made and caused to be made entries in WorldCom's books which improperly capitalized certain line costs for the next five quarters, from the first quarter 2001 through the first quarter 2002. This accounting gimmick resulted in an overstatement of WorldCom's pretax earnings by approximately $3.8 billion for those five quarters." The motivation and mechanism for these manipulations is evident form the SEC's description of what happened at the end of each quarter, after the draft quarterly statements were reviewed. Steps were taken by top management to hide WorldCom's problems and boost or protect the company's stock price in order to profit from stock options, maintain collateral requirements for personal loans, and keep their jobs. These steps were required, in part, to offset the downward pressure on WorldCom's share price caused by U.S. and European regulators rejection of WorldCom's US$115 billion bid for Sprint Communications. Ebbers' company had been using takeovers, rather than organic growth, to prop up earnings and the financial markets began to realize this would be increasingly difficult. According to the SEC: "27. In or around October 2000, at the direction and with the knowledge of World Com senior management, VINSON, NORMAND and others, including Yates and Myers, caused the making of certain improper entries in the company's general ledger for the third quarter of 2000. Specifically, after reviewing the consolidated financial statements for the third quarter of 2000, WorldCom senior management determined that WorldCom had failed to meet analysts' expectations. WorldCom's senior management then instructed Myers, and his subordinates, including Yates. VINSON and NORMAND, to make improper and false entries in WorldCom's general ledger reducing its line cost expense accounts, and reducing -- in amounts corresponding to the improper and false line cost expense amounts - various reserve accounts. After receiving instructions through Yates, VINSON and NORMAND ensured that these entries were made. There was no documentation supporting these entries, and no proper business rationale for them, and they were not in conformity with GAAP. These entries had the effect of reducing third quarter 2000 line costs by approximately $828 million, thereby increasing WorldCom's publicly reported pretax income by that amount for the third quarter of 2000." 3 Manipulations followed the same pattern for Q4, 2000, but a change was required for Q1, 2001 for fear of discovery as is discussed below. **29. In or around April 2001. after reviewing the preliminary consolidated financial statements for the first quarter of 2001, WorldCom's senior management determined that WorldCom had again failed to meet analysts' expectations. Because WorldCom's senior management determined that the company could not continue to draw down its reserve accounts to offset line costs without taking what they believed to be unacceptable risks of discovery by the company's auditors, WorldCom changed its method of fraudulently inflating its income. WorldCom's senior management then instructed Myers, and his subordinates, including Yates, VINSON and NORMAND, to make entries in World Com's general ledger for the first quarter of 2001 which fraudulently reclassified line cost expenses to a variety of capital asset accounts without any supporting documentation or proper business rationale and in a manner that did not conform with GAAP. 30. Specifically, in or around April 2001, at the direction and with the knowledge of WorldCom's senior management, defendants VINSON, NORMAND and others, including Yates and Myers, fraudulently reduced first quarter 2001 line cost expenses by approximately $771 million and correspondingly increased capital asset accounts, thereby fraudulently increasing publicly reported pretax income for the first quarter of 2001 by the same amount. In particular, in or about April 2001, NORMAND telephoned WorldCom's Director of Property Accounting (the "DPA") and instructed him to adjust the schedules he maintained for certain Property, Plant & Equipment capital expenditure accounts (the "PP&E Roll-Forward") by increasing certain capital accounts for "prepaid capacity." NORMAND advised the DPA that these entries had been ordered by WorldCom's senior management. Correspondingly, a subordinate of NORMAND made journal entries in WorldCom's general ledger, transferring approximately $771 million from certain line cost expense accounts to certain PP&E capital expenditure accounts." In future periods, the increase of certain accounts for prepaid capacity' remained the manipulation of choice. WORLDCOM'S OTHER REVELATIONS It should be noted that Ebbers was not an accountant - he began as a milkman and bouncer, and became a basketball coach and then a Best Western Hotel owner before he entered the Telcom business where his 60 acquisitions and style earned him the nickname, 'the Telcom Cowboy". However, he was ably assisted in these manipulations by Scott Sullivan his Chief Financial Officer, and David Myers, his Controller. Both Sullivan and Myers had worked for Arthur Andersen before joining WorldCom. Other spectacular revelations offer a glimpse behind the scenes at WorldCom. The company, which applied for bankruptcy protection in July 21, 2002, also announced that it might write off $50.6 billion in goodwill or other intangible assets when restating for the accounting errors noted above. Apparently other WorldCom decisions had been faulty. The revelations were not yet complete. Investigation revealed that Bernard Ebbers, the CEO, had been loaned $408.2 million. He was supposed to use the loans to buy WorldCom stock or for margin calls as the stock price fell. Instead he used it partly for the purchase of the largest cattle ranch in Canada, construction of a new home, personal expenses of a family member, and loans to family and friends. WHY DID THEY DO IT? According to US Attorney General John Ashcroft: "the alleged Sullivan-Myers scheme was designed to conceal five straight quarterly net losses and create the illusion that the company was profitable. In view of Bernie Ebbers $408.2 million in loans which were largely to buy or pay margin calls on WorldCom stock and which were secured by WorldCom stock, he would be loathe to see further deterioration of the World Com stock price. In short, he could not afford the price decline that would follow from lower WorldCom earnings. In addition, according to the WorldCom's 2002 Annual Meeting Proxy Statement, at December 31, 2001 Ebbers had been allocated exercisable stock options on 8.616.365 shares and Sullivan on 2,811,927. In order to capitalise on the options, Ebbers and Sullivan (and other senior employees) needed the stock price to rise. A rising or at least stable stock price was also essential if WorldCom stock was to be used to acquire more companies. Finally, if the reported results became losses rather than profits, the tenure of senior management would have been shortened significantly. In that event, the personal loans outstanding would be called and stock option gravy train would stop. In 2000. Ebbers and Sullivan had each received tention bonuses of $10 million so they would stay for two years after September 2000. In 1999, Ebbers received a performance bonus allocation of $11,539,387, but he accepted only $7,500,000 of the award. AN EXPERT'S INSIGHTS Former Attorney-General Richard Thornburgh was appointed by the U.S.justice Department to investigate the collapse and bankruptcy of WorldCom. In his Report to the U.S. Bankruptcy Court in Manhattan on November 5, 2002, he said: "One person. Bernard Ebbers, appears to have dominated the company's growth, as well as the agenda, discussions and decisions of the board of directors...." "A picture is clearly emerging of a company that had a number of troubling and serious issues..." relating to "culture, internal controls, management integrity, disclosure and financial statements "While Mr. Ebbers received more than US$77 million in cash and benefits from the company, shareholders lost in excess of US$140 billion in value." THE CONTINUING SAGA The WorldCom saga continues as the company's new management try to restore trust it its activities. As part of this effort, the company changed its name to MCI. 5 "On August 26, 2003. Richard Breeden, the Corporate Monitor appointed by the U.S. District Court for the Southern District of New York, issued a report outlining the steps the Company will take to re-build itself into model of strong corporate governance, ethics and integrity ... (to) foster MCI's new company culture of 'integrity in everything we do." The company is moving deliberately to re-establish the trust and integrity it requires to compete effectively for resources capital and personnel in the future. The SEC has filed complaints, which are on its website against the company, and its executives. The Court has granted the injunctive relief the SEC sought. The executives have been enjoined from further such fraudulent actions, and subsequently banned by the SEC from practising before it, and some have been banned by the Court from acting as officers or directors in the future. WorldCom, as a company, consented to a judgement; "imposing the full injunctive relief sought by the Commission; ordering an extensive review of the company's corporate governance systems, policies, plans, and practices; ordering a review of WorldCom's internal accounting control structure and policies, ordering that WorldCom provide reasonable training and education to certain officers and employees to minimize the possibility of future violations of the federal securities laws, and providing that civil money penalties, if any. will be decided by the Court at a later date." Bernie Ebbers and Scott Sullivan were each indicted on nine charges - one count of conspiracy, one count of securities fraud, and seven counts of false regulatory findings. Scott Sullivan plead guilty on the same day he was indicted, and later cooperated with prosecutors and testified against Bernie Ebbers in the hopes of receiving a lighter sentence." Early in 2002, Bernie stood up in church to address the congregation saying: "I just want you to know that you're not going to church with a crook." Bernie took the stand and argued that he didn't know anything about WorldCom's shady accounting that he left much of the minutiae of running the company to underlings." But after eight days deliberations, on March 15, 2005 a federal jury in Manhattan didn't buy his "aw shucks", "hands-off", or "ostrich-in-the- sand defense." The jury believed Scott Sullivan who told the jury that Ebbers repeatedly told Sullivan to "hit his numbers' - a command ... to falsify the books to meet Wall Street expectations." They did not buy Ebbers "I know what I don't know." argument "especially after the prosecutor portrayed a man who obsessed over detail and went ballistic over US$18,000 cost overrun in a USS3-billion budget item while failing to pick up on the bookkeeping claim that telephone line costs often fluctuated - fraudulently - by up to US$900-million a month. At other times, he replaced bottled water with tap water at WorldCom's offices, saying employees would not know the difference." On July 13, 2005, Bernie was sentenced to 25 years in a federal prison. Once a billionaire, he also lost his house, property, yacht and fortune. At 63 years of age, he is appealing his sentence. Sullivan's reduced sentence was for five years in a federal prison. forfeiture of his house, ill-gotten gains and a fine. Investors, lost over $180 million in WorldCom's collapse, and more in other companies as the confidence in credibility of the financial markets, governance mechanisms and financial statements continued to deteriorate. 6 WORLDCOM CASE for Question 3 WorldCom, Inc., the second largest US telecommunications giant and almost 70% larger than Enron in assets, announced on June 25, 2002 that it had overstated cash flow by $3.8 billion. This came as a staggering blow to the credibility of capital markets. WORLDCOMS ACCOUNTING MANIPULATIONS WorldCom's accounting manipulations involved very basic, easy-to spot types of fraud. Overstatements of cash flow and income were created because one of WorldCom's major expenses, "line costs" - "fees paid to third party telecommunication network providers for the right to access the third parties networks were accounted for improperly. Essentially line costs that should have been expensed thus lowering reporting income, were offset by capital transfers or charged against capital accounts, thus placing their impact on the balance sheet rather than the income statement. In addition, WorldCom created excess reserves or provisions for future expenses, which they later released or reduced thereby adding to profits. The manipulation of profit through reserves or provisions is known as "cookie jar accounting. The aggregate overstatement of income quickly rose to more than $9 billion by September 19, 2002 for the following reasons: $3.85 billion for improperly capitalized expenses, announced June 25, 2002 $3.83 billion for more improperly capitalized expenses in 1999, 2000, 2001, and the first quarter of 2002, announced on August 8, 2002 $2.0 billion for manipulations of profit through previously established reserves, dating back to 1999 Ultimately, the WorldCom fraud totaled $11 billion. Key senior personnel involved in the manipulations at World Com included: Bernard J. Ebbers, CEO Scott D. Sullivan, CFO Buford Yates, Jr, Director of General Accounting David F. Myers, Controller Betty L. Vinson, Director of Management Reporting, from Jan. 2002 Troy M. Normand, Director of Legal Entity Accounting, from Jan. 2002 According to SEC's Complaint against Vinson and Normand: . . . **4. World Com fraudulently manipulated its financial results in a number of respects, including by improperly reducing its operating expenses in at least two ways. First, World Com improperly released certain reserves held against operating expenses. Second WorldCom improperly re- characterized certain operating costs as capital assets. Neither practice was in conformity with generally accepted accounting principles ("GAAP"). Neither practice was disclosed to WorldCom's investors, despite the fact that both practices constituted changes from WorldCom's previous accounting practices. Both practices artificially and materially inflated the income WorldCom reported to the public in its financial statements from 1999 through the first quarter of 2002. 5. Many of the improper accounting entries related to WorldCom's expenses for accessing the networks of other telecommunications companies ("line costs"), which were among WorldCom's major operating expenses. From at least the third quarter of 2000 through the first quarter of 2002, in a scheme directed and approved by senior management, and participated in by VINSON, NORMAND and others, including Yates and Myers, World Com concealed the true magnitude of its line costs. By improperly reducing reserves held against line costs, and then after effectively exhausting its reserves-by re-characterizing certain line costs as capital assets, World Com falsely portrayed itself as a profitable business when it was not, and concealed the large losses it suffered. WorldCom's fraudulent accounting practices with respect to line costs were designed to and did falsely and fraudulently inflate its income to correspond with estimates by Wall Street analysts and to support the price of WorldCom's common stock and other securities. 6. More specifically, in the third and fourth quarters of 2000, at the direction and with the knowledge of WorldCom's senior management, VINSON, NORMAND and others, by making and causing to be made entries in WorldCom's books which improperly decreased certain reserves to reduce WorldCom's line costs, caused WorldCom to overstate pretax earnings by $828 million and at least 5407 million respectively. Then, after World Com had drawn down WorldCom's reserves so far that the reserves could not be drawn down further without taking what senior management believed was an unacceptable risk of discovery, VINSON, NORMAND and others, again at the direction and with the knowledge of senior management, made and caused to be made entries in WorldCom's books which improperly capitalized certain line costs for the next five quarters, from the first quarter 2001 through the first quarter 2002. This accounting gimmick resulted in an overstatement of WorldCom's pretax earnings by approximately $3.8 billion for those five quarters." The motivation and mechanism for these manipulations is evident form the SEC's description of what happened at the end of each quarter, after the draft quarterly statements were reviewed. Steps were taken by top management to hide WorldCom's problems and boost or protect the company's stock price in order to profit from stock options, maintain collateral requirements for personal loans, and keep their jobs. These steps were required, in part, to offset the downward pressure on WorldCom's share price caused by U.S. and European regulators rejection of WorldCom's US$115 billion bid for Sprint Communications. Ebbers' company had been using takeovers, rather than organic growth, to prop up earnings and the financial markets began to realize this would be increasingly difficult. According to the SEC: "27. In or around October 2000, at the direction and with the knowledge of World Com senior management, VINSON, NORMAND and others, including Yates and Myers, caused the making of certain improper entries in the company's general ledger for the third quarter of 2000. Specifically, after reviewing the consolidated financial statements for the third quarter of 2000, WorldCom senior management determined that WorldCom had failed to meet analysts' expectations. WorldCom's senior management then instructed Myers, and his subordinates, including Yates. VINSON and NORMAND, to make improper and false entries in WorldCom's general ledger reducing its line cost expense accounts, and reducing -- in amounts corresponding to the improper and false line cost expense amounts - various reserve accounts. After receiving instructions through Yates, VINSON and NORMAND ensured that these entries were made. There was no documentation supporting these entries, and no proper business rationale for them, and they were not in conformity with GAAP. These entries had the effect of reducing third quarter 2000 line costs by approximately $828 million, thereby increasing WorldCom's publicly reported pretax income by that amount for the third quarter of 2000." 3 Manipulations followed the same pattern for Q4, 2000, but a change was required for Q1, 2001 for fear of discovery as is discussed below. **29. In or around April 2001. after reviewing the preliminary consolidated financial statements for the first quarter of 2001, WorldCom's senior management determined that WorldCom had again failed to meet analysts' expectations. Because WorldCom's senior management determined that the company could not continue to draw down its reserve accounts to offset line costs without taking what they believed to be unacceptable risks of discovery by the company's auditors, WorldCom changed its method of fraudulently inflating its income. WorldCom's senior management then instructed Myers, and his subordinates, including Yates, VINSON and NORMAND, to make entries in World Com's general ledger for the first quarter of 2001 which fraudulently reclassified line cost expenses to a variety of capital asset accounts without any supporting documentation or proper business rationale and in a manner that did not conform with GAAP. 30. Specifically, in or around April 2001, at the direction and with the knowledge of WorldCom's senior management, defendants VINSON, NORMAND and others, including Yates and Myers, fraudulently reduced first quarter 2001 line cost expenses by approximately $771 million and correspondingly increased capital asset accounts, thereby fraudulently increasing publicly reported pretax income for the first quarter of 2001 by the same amount. In particular, in or about April 2001, NORMAND telephoned WorldCom's Director of Property Accounting (the "DPA") and instructed him to adjust the schedules he maintained for certain Property, Plant & Equipment capital expenditure accounts (the "PP&E Roll-Forward") by increasing certain capital accounts for "prepaid capacity." NORMAND advised the DPA that these entries had been ordered by WorldCom's senior management. Correspondingly, a subordinate of NORMAND made journal entries in WorldCom's general ledger, transferring approximately $771 million from certain line cost expense accounts to certain PP&E capital expenditure accounts." In future periods, the increase of certain accounts for prepaid capacity' remained the manipulation of choice. WORLDCOM'S OTHER REVELATIONS It should be noted that Ebbers was not an accountant - he began as a milkman and bouncer, and became a basketball coach and then a Best Western Hotel owner before he entered the Telcom business where his 60 acquisitions and style earned him the nickname, 'the Telcom Cowboy". However, he was ably assisted in these manipulations by Scott Sullivan his Chief Financial Officer, and David Myers, his Controller. Both Sullivan and Myers had worked for Arthur Andersen before joining WorldCom. Other spectacular revelations offer a glimpse behind the scenes at WorldCom. The company, which applied for bankruptcy protection in July 21, 2002, also announced that it might write off $50.6 billion in goodwill or other intangible assets when restating for the accounting errors noted above. Apparently other WorldCom decisions had been faulty. The revelations were not yet complete. Investigation revealed that Bernard Ebbers, the CEO, had been loaned $408.2 million. He was supposed to use the loans to buy WorldCom stock or for margin calls as the stock price fell. Instead he used it partly for the purchase of the largest cattle ranch in Canada, construction of a new home, personal expenses of a family member, and loans to family and friends. WHY DID THEY DO IT? According to US Attorney General John Ashcroft: "the alleged Sullivan-Myers scheme was designed to conceal five straight quarterly net losses and create the illusion that the company was profitable. In view of Bernie Ebbers $408.2 million in loans which were largely to buy or pay margin calls on WorldCom stock and which were secured by WorldCom stock, he would be loathe to see further deterioration of the World Com stock price. In short, he could not afford the price decline that would follow from lower WorldCom earnings. In addition, according to the WorldCom's 2002 Annual Meeting Proxy Statement, at December 31, 2001 Ebbers had been allocated exercisable stock options on 8.616.365 shares and Sullivan on 2,811,927. In order to capitalise on the options, Ebbers and Sullivan (and other senior employees) needed the stock price to rise. A rising or at least stable stock price was also essential if WorldCom stock was to be used to acquire more companies. Finally, if the reported results became losses rather than profits, the tenure of senior management would have been shortened significantly. In that event, the personal loans outstanding would be called and stock option gravy train would stop. In 2000. Ebbers and Sullivan had each received tention bonuses of $10 million so they would stay for two years after September 2000. In 1999, Ebbers received a performance bonus allocation of $11,539,387, but he accepted only $7,500,000 of the award. AN EXPERT'S INSIGHTS Former Attorney-General Richard Thornburgh was appointed by the U.S.justice Department to investigate the collapse and bankruptcy of WorldCom. In his Report to the U.S. Bankruptcy Court in Manhattan on November 5, 2002, he said: "One person. Bernard Ebbers, appears to have dominated the company's growth, as well as the agenda, discussions and decisions of the board of directors...." "A picture is clearly emerging of a company that had a number of troubling and serious issues..." relating to "culture, internal controls, management integrity, disclosure and financial statements "While Mr. Ebbers received more than US$77 million in cash and benefits from the company, shareholders lost in excess of US$140 billion in value." THE CONTINUING SAGA The WorldCom saga continues as the company's new management try to restore trust it its activities. As part of this effort, the company changed its name to MCI. 5 "On August 26, 2003. Richard Breeden, the Corporate Monitor appointed by the U.S. District Court for the Southern District of New York, issued a report outlining the steps the Company will take to re-build itself into model of strong corporate governance, ethics and integrity ... (to) foster MCI's new company culture of 'integrity in everything we do." The company is moving deliberately to re-establish the trust and integrity it requires to compete effectively for resources capital and personnel in the future. The SEC has filed complaints, which are on its website against the company, and its executives. The Court has granted the injunctive relief the SEC sought. The executives have been enjoined from further such fraudulent actions, and subsequently banned by the SEC from practising before it, and some have been banned by the Court from acting as officers or directors in the future. WorldCom, as a company, consented to a judgement; "imposing the full injunctive relief sought by the Commission; ordering an extensive review of the company's corporate governance systems, policies, plans, and practices; ordering a review of WorldCom's internal accounting control structure and policies, ordering that WorldCom provide reasonable training and education to certain officers and employees to minimize the possibility of future violations of the federal securities laws, and providing that civil money penalties, if any. will be decided by the Court at a later date." Bernie Ebbers and Scott Sullivan were each indicted on nine charges - one count of conspiracy, one count of securities fraud, and seven counts of false regulatory findings. Scott Sullivan plead guilty on the same day he was indicted, and later cooperated with prosecutors and testified against Bernie Ebbers in the hopes of receiving a lighter sentence." Early in 2002, Bernie stood up in church to address the congregation saying: "I just want you to know that you're not going to church with a crook." Bernie took the stand and argued that he didn't know anything about WorldCom's shady accounting that he left much of the minutiae of running the company to underlings." But after eight days deliberations, on March 15, 2005 a federal jury in Manhattan didn't buy his "aw shucks", "hands-off", or "ostrich-in-the- sand defense." The jury believed Scott Sullivan who told the jury that Ebbers repeatedly told Sullivan to "hit his numbers' - a command ... to falsify the books to meet Wall Street expectations." They did not buy Ebbers "I know what I don't know." argument "especially after the prosecutor portrayed a man who obsessed over detail and went ballistic over US$18,000 cost overrun in a USS3-billion budget item while failing to pick up on the bookkeeping claim that telephone line costs often fluctuated - fraudulently - by up to US$900-million a month. At other times, he replaced bottled water with tap water at WorldCom's offices, saying employees would not know the difference." On July 13, 2005, Bernie was sentenced to 25 years in a federal prison. Once a billionaire, he also lost his house, property, yacht and fortune. At 63 years of age, he is appealing his sentence. Sullivan's reduced sentence was for five years in a federal prison. forfeiture of his house, ill-gotten gains and a fine. Investors, lost over $180 million in WorldCom's collapse, and more in other companies as the confidence in credibility of the financial markets, governance mechanisms and financial statements continued to deteriorate. 6