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Bernie Ebbers, ‘Telecom Cowboy’ Who Built WorldCom, Dies at 78

Bernie Ebbers, ‘Telecom Cowboy’ Who Built WorldCom, Dies at 78

Bernard Ebbers, the former WorldCom Inc. chief executive who spent more than 13 years in prison for participating in one of the largest accounting frauds in U.S. history, died Sunday at age 78, according to his family.

In a statement sent by an attorney confirming Mr. Ebbers’s death, his family again defended his early release, saying keeping him in prison, “especially in his unexplained and undiagnosed deteriorated condition, would not bring back anyone’s investments.”

Mr. Ebbers, who built WorldCom from scratch through dozens of takeovers, was once dubbed the “telecom cowboy” for his purchase of larger rival MCI Communications Corp. At its peak in 1999, WorldCom had a market capitalization of about $180 billion. Within a few years of that peak, the fraud came to light, and the company collapsed into bankruptcy.

The ex-CEO was found guilty in 2005 on nine counts including securities fraud and conspiracy to commit fraud by falsifying WorldCom’s financial results, and received a 25-year sentence. He and other executives improperly boosted profit by booking operating expenses as capital spending, which can be deducted from earnings in small chunks over time.

The telecom giant was forced to restate its earnings after an internal auditor exposed the fraud to regulators; the company filed for bankruptcy protection in 2002 and laid off thousands of employees. With assets valued at $107 billion, it was at the time the largest bankruptcy filing in U.S. corporate history.

Mr. Ebbers’s conduct “caused literally tens of thousands or more of innocent shareholders to suffer billions of dollars in losses,” federal prosecutor David Anders wrote in a sentencing memo to the judge during the trial.

Mr. Ebbers borrowed heavily from WorldCom, which helped lead to his ouster as CEO in 2002 and the unraveling of the accounting fraud; he arrived at federal offices in New York City in 2004.


Photo:

Mary Altaffer/Associated Press

Known for his white hair, blue eyes and penchant for cowboy boots and turquoise jewelry, Mr. Ebbers had pleaded not guilty to the charges. He claimed he didn’t know the company’s finances were being manipulated.

Born on Aug. 27, 1941 in Edmonton, Alberta, to a deeply religious family, Mr. Ebbers was the second of five children. His father, John T. Ebbers, worked as a traveling salesman and mechanic.

“Bernie” Ebbers was raised in Edmonton until his family moved to California in the late 1940s. They later relocated to Gallup, N.M., and Mr. Ebbers attended a boarding school on a Navajo reservation.

He attended and left two colleges before returning to Edmonton. He delivered milk and worked as a bouncer at a nightclub, eventually enrolling at Mississippi College, a private Baptist college in the Deep South.

He played college basketball and secured a scholarship. After an injury stopped him from playing, Mr. Ebbers coached basketball and continued to do so after he graduated in 1967.

Mr. Ebbers married Linda Pigott, his first wife, in 1968, and they had four daughters, Treasure, Ave, Joy and Faith. Mr. Ebbers and his wife divorced in 1997, and he remarried two years later.

Early in his professional life Mr. Ebbers worked in a garment factory in Brookhaven, Miss., and later began assembling a portfolio of motels. He bought his first motel in Columbia, Miss., in 1974, moving with his then-wife into a two-bedroom trailer in the property’s parking lot.

The telecommunications industry, which had long been controlled by a monopoly known as Ma Bell, was on the cusp of a change that would redefine the companies that dominated it. A judge in 1983 ordered the breakup of AT&T’s Bell System, which spurred some investors and entrepreneurs to seek profits from reselling long-distance service.

Mr. Ebbers and a handful of investors backed a company called Long Distance Discount Service, or LDDS. Mr. Ebbers became chief executive of the money-losing company in 1985 and helped it gain scale through rapid acquisitions.

He often took on debt to complete those purchases. As the company grew and his personal wealth accumulated, Mr. Ebbers would use increasingly burdensome debt to fuel acquisitions.

The company was renamed WorldCom in 1995. He led the company through dozens of deals, some worth billions of dollars, while continuing to invest in a personal real-estate collection.

Properties he owned included a sprawling ranch in British Columbia, a timberland tract and shipyard in Savannah, Ga., and a large home in Brookhaven, Miss.

Mr. Ebbers began to borrow money from WorldCom in the late 1990s, using the loan in part to buy more company stock.

Meanwhile, his deal ambitions grew. WorldCom in 1998 bought MCI, the No. 2 long-distance provider, for $37 billion, and put Mr. Ebbers at the helm of the combined company. The following year, he tried an even bigger deal, making a $115 billion bid for

Sprint,

the No. 3 long-distance provider and a wireless carrier. The deal was called off in 2000 after U.S. and European regulators moved to block it.

In addition to serving his prison sentence, Mr. Ebbers agreed to pay $5 million in cash and to transfer nearly all his assets to settle a class-action lawsuit brought by WorldCom shareholders.


Photo:

Chris Hondros/Getty Images

He earned a reputation as a competitive and hard-driving boss who expected loyalty and had an appetite for risky bets in the name of growth. In a book on WorldCom’s rise and fall, reporter Lynn W. Jeter wrote Mr. Ebbers carefully monitored which shareholders and employees sold stock. His staff tried to avoid being on “Bernie’s List,” she wrote.

WorldCom began to show signs of stress in 2000 when its share price declined as the dot-com stock market bubble popped, leading to a shakeout of internet and telecom companies. At the time, the company guaranteed and then assumed Mr. Ebbers’s borrowings.

He was fired as CEO in April 2002 partly because he owed WorldCom more than $400 million, including money the company lent him to cover margin calls on loans secured by company stock. The scale of what Mr. Ebbers had borrowed from the company helped spur a Securities and Exchange Commission inquiry.

By early summer that year, an internal auditor conducting a review at the direction of the company’s new chief executive spotted accounting irregularities, beginning to unearth the scale of the fraud that had been committed.

Mr. Ebbers appeared at his Mississippi church in 2002 after he was ousted to attend that day’s service and to teach Sunday school. At the end of the service he walked to the front of the church and spoke to the parish: “I just want you to know you aren’t going to church with a crook.”

He wasn’t the only executive punished for the accounting fraud, but he did face the longest sentence.

WorldCom’s former chief financial officer, Scott Sullivan, who engineered the fraud and worked closely with Mr. Ebbers, was sentenced to five years in prison after cooperating with prosecutors. His testimony that Mr. Ebbers knew of the accounting methods used was key to the prosecution’s case. Mr. Ebbers took the stand and tried to distance himself from Mr. Sullivan during the trial.

Friends, former colleagues, family and at least one former fellow church member wrote to the court on behalf of Mr. Ebbers, vouching for his character. His lead defense attorney said his client had given more than $100 million to charities anonymously. Mr. Ebbers also said he suffered from a heart condition called cardiomyopathy, in which the heart muscle doesn’t pump blood properly.

The former chief executive hung his head as a judge delivered his sentence in 2005 and cried while hugging his then-wife, Kristie Ebbers. He drove himself to prison in a Mercedes the following year and spent part of his sentence as inmate No. 56022-054 in a low-security prison in Louisiana. He was later transferred to FMC Fort Worth, a federal prison hospital in Texas with round-the-clock nursing care.

To settle a class-action lawsuit brought by WorldCom shareholders, Mr. Ebbers agreed to pay $5 million cash and transfer nearly all of his assets, including his home and interests in timberland, a trucking company, marina, golf course, hotel and other real-estate ventures.

His second wife filed for divorce in 2008, two years after his prison sentence began.

While Mr. Ebbers was standing trial, WorldCom, which re-emerged from bankruptcy as MCI Inc. in 2004, agreed to be acquired by

Verizon Communications Inc.

The $8.5 billion deal closed in early 2006.

More than 13 years into his sentence, Mr. Ebbers was granted compassionate release from prison, citing “extraordinary and compelling medical circumstances” that arose during the time he served. Judge

Valerie Caproni

granted his family’s request for a compassionate release in December.

His daughter, Joy Ebbers Bourne, told the court that she visited and spoke with her father regularly and had noticed his health decline.

Mr. Ebbers had lost weight, had difficulty walking and struggled to sleep, she wrote in court documents. He also had macular degeneration, an eye disease that made him legally blind, in addition to cardiomyopathy, which puts him at risk of a heart attack or stroke, she wrote.

The former executive used a magnifying glass to read, fill out medical forms and make phone calls in prison because of his failing eyesight, she wrote, and wasn’t permitted to replace it when it broke. He was assaulted in 2017 by a fellow prisoner after he unintentionally bumped into the person because of his eyesight problems, she added.

Mr. Ebbers’s scheduled release date had been July 4, 2028, according to the Federal Bureau of Prisons.

When Judge Barbara Jones sentenced Mr. Ebbers to 25 years in prison in 2005, she acknowledged that it was likely a life sentence. That judge, however, later wrote two letters on Mr. Ebbers’s behalf.

She wrote to President Trump in 2017 supporting Mr. Ebbers’s then-petition to have his sentence commuted, and another in September to a district court judge in New York that said he has been punished enough.

In her most recent letter she said reducing the sentence in light of his medical conditions “would not diminish the message that I sought to convey in 2005. It would show compassion.”

Mr. Ebbers’s family said in the statement that after grieving they plan to advocate for compassionate release for other prisoners.

Write to Sarah Krouse at [email protected]

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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