NEW YORK – Confronted with deteriorating finances at WorldCom, CEO Bernard Ebbers (search) repeatedly insisted the company had to "hit our numbers," the former chief financial officer testified Tuesday.
Scott Sullivan (search) told jurors at Ebbers' fraud trial that he informed the CEO in the fall of 2000 that it could only meet Wall Street expectations by booking improper figures to boost revenue and hide expenses.
"I told Bernie, `This isn't right,'" Sullivan said, describing an October 2000 meeting in which he showed Ebbers a plan to create $133 million in revenue by improperly drawing down reserve accounts.
"He just stared at it, and he looked up at me and he said, `We have to hit our numbers,'" Sullivan testified.
The government contends the remark was a command from Ebbers for Sullivan and WorldCom (search) accountants to commit fraud — a fraud that eventually grew to $11 billion and drove the telecommunications firm into bankruptcy in 2002.
Two accountants have testified they threatened to quit in October 2000, and Sullivan testified he sent a handwritten note to Ebbers complaining that there was no support for the adjustments.
Sullivan said Ebbers later told him: "We shouldn't be making these people make these adjustments."
On his second day of testimony, Sullivan, the star witness for the government and the only one to directly link Ebbers to the fraud, walked jurors through late 2000, when WorldCom's business was suffering mightily.
At the time, the dot-com bubble had burst, and WorldCom was faced with sharply slowing revenue growth and expenses that soared so high Sullivan said he thought there was something wrong with the numbers.
Sullivan said he told Ebbers that WorldCom had to issue a revenue growth projection for 2001 of 9 percent to 10 percent, and 12 percent at most. He said Ebbers balked.
"Bernie said, `12 percent? This is a growth company, WorldCom Group. We've got to be focused at 15 percent growth.'" Days later, WorldCom Group projected 12 percent to 15 percent growth.
Prosecutors have said Ebbers orchestrated the conspiracy because he was obsessed with keeping WorldCom's stock price high, partly to protect $400 million in personal loans that were backed by WorldCom stock.
Sullivan testified that in September 2000, Ebbers complained about margin calls on his loans from the bank, seeking additional collateral because WorldCom stock was falling.
"He said he was receiving margin calls from Bank of America, and they were screwing him," Sullivan said.
Sullivan also testified Tuesday that Ebbers twice rejected lowering third-quarter projections in 2000, first saying WorldCom could not do it without explaining the circumstances and then saying the company could wait to lower forecast until the next quarter.
The former CFO said Ebbers regularly pressured him to meet revenue and earnings targets to please Wall Street.
"The source of the pressure was Bernie, and the source of the pressure was also the marketplace," Sullivan said.
Sullivan said WorldCom adjusted some of its revenue figures, such as credits for overbilling, with the goal of meeting Wall Street analysts' growth expectations.
Sullivan testified he presented monthly revenue reports to Ebbers in mid-2000, and Ebbers used phrases like "This is horrible, this is terrible results," to express his dissatisfaction.
Ebbers is accused of fraud, conspiracy and submitting false filings to the Securities and Exchange Commission — in effect overseeing the enormous fraud that sank WorldCom into bankruptcy in 2002.
The defense has portrayed Ebbers as uncomfortable with accounting details, preferring to remain a visionary leader.
But Sullivan's testimony has suggested he was a hands-on manager who deftly analyzed financial figures — and who was fanatical about controlling even the most minor of expenses, such as coffee filters.