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Financial Felons: Bernard Ebbers

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This post is part of a feature in which he wonder whatever happened to some notorious financial felons. See all 17.

Bernard Ebbers, WorldCom's founder, built it into the world's largest telephone company, then drove it into the ground with his illegal dealings. He overstated WorldCom's cash flow by improperly booking $11 billion in company revenues. Shareholders first became aware of the problem when WorldCom announced it needed to restate its financial reports in March 2002.

As part of his shenanigans, Ebbers got $400 million in off-the-books loans from the company. Criminal fraud charges were filed against Ebbers and former Chief Financial Officer Scott Sullivan. Sullivan pleaded guilty to three criminal charges related to the fraud and cooperated with prosecutors in their case against Ebbers. Ebbers was sentenced to 25 years in prison. He is serving his time in the Oakdale, Louisiana, Federal Corrections institute.

Investor groups filed a class-action case against WorldCom's former directors, former executives, 18 banks, and its auditor, the infamous Arthur Anderson. A settlement was reached with some of these plaintiffs. Some former WorldCom directors paid a total of $50 million toward the settlement. Citigroup, which had promoted WorldCom's stocks and bonds as good investments even though it had concerns about WorldCom's rocky financial position, paid $2.65 billion.

We all should have taken this case as a warning that the banks and their directors were not to be trusted. This case turned out to be just a very small warning for the havoc the banks would soon create with the current credit crisis. This case clearly showed that the banks were more interested in making money on the sale of assets (no matter what they thought about the value of those assets) than they were about the interests of their customers and their shareholders. Unfortunately this greed has now not only taken down the world's largest telephone company. The greed of some U.S. investment and commercial banks has helped to take down the world's economy.

Lita Epstein has written more than 25 books including Reading Financial Reports for Dummies and Trading for Dummies.

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Last updated: November 08, 2009: 11:55 PM

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