ebbers pays up hmmmmmm

["Miklos A. Vasarhelyi" <miklosv@andromeda.rutgers.edu>]

July 1, 2005

Ebbers Set to Shed His Assets

By GRETCHEN MORGENSON

Bernard J. Ebbers, the founder and former chief executive of World Com
who was found guilty of fraud by a New York jury in March, agreed
yesterday to surrender nearly all of his personal fortune - about $40
million - to investors who lost billions when the company spiraled into
bankruptcy almost three years ago. 

MCI, the successor company to

WorldCom after it emerged from bankruptcy in April 2004, will also
share in the proceeds from the sale of Mr. Ebbers's assets, although the
company stands to receive nowhere near the $338 million it is owed by the
former chief executive.

Mr. Ebbers struck the reparation deal with David N. Kelley, the United
States attorney for the Southern District of New York, and
representatives of Alan G. Hevesi, the New York State comptroller and
head of the state's Common Retirement Fund. 

Mr. Hevesi is the lead plaintiff in the WorldCom securities litigation
and has collected more than $6.1 billion from a handful of the company's
former investment banks and its former auditor, Arthur Andersen.

Mr. Hevesi also set a precedent in a securities fraud lawsuit by
extracting almost $25 million from the personal holdings of WorldCom's 12
former directors. The amount recovered by the New York fund dwarfs
restitution figures reached in other securities fraud cases, including

Cendant and Computer Associates.

The deal with Mr. Ebbers was concluded in advance of his sentencing in
the criminal case, which is scheduled for July 13. Prosecutors have asked
the judge overseeing the case to sentence Mr. Ebbers to 85 years for
masterminding the $11 billion WorldCom fraud, the largest in United
States corporate history. Barbara S. Jones, the judge in the case, must
approve the settlement agreement reached yesterday with Mr. Ebbers. If it
is approved, prosecutors said they would not seek restitution beyond the
sale of his assets at Mr. Ebbers's sentencing.

"Mr. Ebbers was the person most responsible for the biggest
corporate fraud in history and it is appropriate that he surrender most
of his personal wealth to the stockholders and bondholders he
betrayed," Mr. Hevesi said in a statement. 

David R. Kaufman, a lawyer who represents Mr. Ebbers, said that neither
he nor his client would comment on the settlement. 

The assets that Mr. Ebbers has promised to turn over include $5 million
in cash, a prospective "multimillion dollar" tax refund,
300,000 acres of timberland in Mississippi, as well as interests in a
major trucking business, a marina and golf course, a crop and crawfish
farm and grain elevator, a hotel and other real estate ventures. He and
his wife will also be required to vacate their multimillion-dollar home
in Clinton, Miss., by October; it will be put up for sale. 

In addition, Mr. Ebbers has agreed to pay $450,000 to former WorldCom
employees who sued him over losses they incurred in their retirement
accounts, which were heavily invested in WorldCom stock.

Mr. Ebbers will be allowed to keep some money to pay his legal bills,
although the amount was not disclosed. At the height of the
telecommunications boom about five years ago, Mr. Ebbers was worth $1
billion on paper. He got into financial trouble when he borrowed against
his WorldCom stock to invest in real estate - he bought a 500,000-acre
ranch in Canada - and other businesses. The ranch has already been sold.
When WorldCom stock collapsed, the company lent him hundreds of millions
of dollars to pay off the loans backed by the shares. 

The New York State fund will hire a trustee to oversee the sale of the
assets and distribute the proceeds to the hundreds of thousands of
investors who lost money buying WorldCom bonds and stock in the years
leading up to its collapse. These investors included mutual funds,
insurance companies and individuals; they will receive 94.5 percent of
the $6.1 billion recovered by Mr. Hevesi in the suit. 

The rest will go to the lawyers representing the New York fund, Bernstein
Litowitz Berger & Grossmann and Barrack, Rodos & Bacine, both of
New York. Lawyers for the fund have agreed to take no fees from the
proceeds generated by the settlement agreement.

Brittany Feinson, an MCI spokeswoman, said, "This settlement is
another positive step forward and enables the company to realize
significant value for its shareholders." 

Mr. Ebbers is not the first former telecommunications chief to dig into
his own pocket to cover investors' losses. Gary Winnick, the founder of

Global Crossing, paid $30 million of his own money to settle with
investors and former workers who lost money and their pensions when that
company collapsed in 2002. But that $30 million was a fraction of the
$734 million that Mr. Winnick reaped by selling shares in Global Crossing
before it failed. 

In return for the payments and asset transfers Mr. Ebbers is making,
Attorney General Eliot Spitzer of New York has also agreed to resolve his
case against Mr. Ebbers relating to his receipt of hot stock offerings
during the technology bubble. Mr. Ebbers, an important client of Wall
Street brokerage firms, received large amounts of stocks that most other
investors did not receive.

Sean Coffey, a lawyer at Bernstein Litowitz, said that the two firms
representing Mr. Hevesi were in settlement talks with the three remaining
defendants in the WorldCom securities case. They are Scott Sullivan, the
former chief financial officer who testified against his former boss at
Mr. Ebbers's criminal trial this year, and two other financial executives
at the company, David F. Myers and Buford Yates. 

Mr. Sullivan's lawyer declined to comment on the negotiations. Lawyers
for Mr. Myers and Mr. Yates did not return phone calls seeking comment.

Miklos A. Vasarhelyi
KPMG Professor of AIS
Director RARC / CARLAB
Rutgers University
315 Ackerson Hall
180 University Avenue
Newark, NJ 07102
(973) 353 5002
(201) 454 4377 (cell)
http://raw.rutgers.edu/mik los