Criminal charges have been filed against two former WorldCom executives in connection with the largest corporate bankruptcy in American history.
Fired WorldCom Chief Financial Officer Scott Sullivan as well as the company's former controller David Myers were both handcuffed and taken into custody Thursday, ahead of a federal criminal complaint charging them with securities fraud and conspiracy.
The nation's second largest long-distance provider disclosed in June that it hid nearly $4 billion in expenses while falsely stating profits.
At the Justice Department, Deputy U.S. Attorney General Larry Thompson told reporters both defendants flouted accounting rules and lied outright to investors.
"As the complaint alleges, the defendants orchestrated a scheme to defraud the investing public by convincing them that WorldCom was meeting stock analysts' expectations," he said, "when in fact the complaint alleges that WorldCom's revenues had begun falling off and beginning in early 2001, the defendants began to concoct phony accounting entries to close the gap between expectations and the disappointing reality."
WorldCom filed for bankruptcy last month, and remains the target of investigation by the Securities and Exchange Commission into allegations of fraud.
These criminal charges are likely to increase pressure on both former officials to cooperate with prosecutors in their investigation of potential wrong-doing by former chief executive Bernard Ebbers. He resigned just before WorldCom disclosed its massive accounting problems.
The Mississippi-based company operates in more than 64 countries and also owns long-distance carrier MCI. It had been one of the best performing stocks on Wall Street during the 1990s, but is now in bankruptcy court, with more than 10,000 employees out of jobs as it reorganizes.
The investigation into the stunning disclosures of WorldCom's accounting lapses is the latest in a series of federal inquiries into potential fraud at a number of high-profile companies, all of which have propelled Congress to quickly pass legislation quadrupling the penalties for accounting fraud.