Corporate criminals Ebbers, Fastow pay stiff price

[stu]

By Anna Driver

Tue Sep 26, 4:37 PM ET

 

 

 

NEW YORK (Reuters) - Two men at the heart of corporate greed scandals in America paid the price on Tuesday, as a judge sentenced former Enron Corp. executive Andrew Fastow to prison and Bernard Ebbers, once the chief executive of highflying WorldCom Inc. began serving a 25-year sentence.

 

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The massive accounting scandals at both companies triggered bankruptcies, stoked investor outrage and ultimately led to the enactment of the Sarbanes-Oxley corporate governance reforms.

 

"Today we see that the system is not completely broken," Nell Minow, co-founder of governance firm the Corporate Library. "Every corporate director and every corporate manager must be feeling goosebumps and that should help every investor feel a little better."

 

Fastow, 44, whose financial wizardry was exposed as fakery and theft in the Enron collapse, was sentenced to six years in prison in Houston by U.S. District Judge Ken Hoyt -- four years less than provided for in his 2004 plea agreement.

 

Judge Hoyt cited Fastow's cooperation with prosecutors, his desire to help victims suing to recover their losses and his visible remorse in imposing the lighter sentence.

 

Noting that the former chief financial officer of Enron forfeited more than $24 million along with another $5 million from friends and family, the judge imposed no fine and recommended a minimum security prison in Bastrop, Texas.

 

Fastow's sentence is light in comparison to the amount of time former WorldCom chief Ebbers is sentenced to serve.

 

Ebbers, 65, convicted of orchestrating an $11 billion accounting fraud, reported to a medium-security federal prison in Oakdale, Louisiana to begin his 25-year sentence. The fraud pushed the company into bankruptcy -- the largest ever.

 

As part of the fraud, WorldCom guaranteed $400 million in personal loans to Ebbers, who used the money to pay for a yacht, a sawmill and a sprawling Canadian cattle ranch. Ebbers did not repay the loans, forcing the company to sue to recover, according to accounts from his trial.

 

At a sentencing hearing in 2005, Judge Barbara Jones recommended Ebbers be sent to a minimum-security facility in Yazoo City, Mississippi. But the Bureau of Prisons is not bound by the judge's recommendation.

 

Ebbers, known as a grandfatherly CEO who preferred cowboy boots to suits, transformed WorldCom into a telecommunications powerhouse through a string of takeovers.

 

He was convicted by a jury in March 2005 of nine counts of conspiracy, securities fraud and other crimes that led to the telecommunications company's July 2002 bankruptcy.

 

He had remained free on bail while appealing his conviction and sentence, but in July the U.S. Second Circuit Court of Appeals affirmed both.

 

Under federal rules, Ebbers would be required to serve about 85 percent of his sentence -- meaning that he would not be released until 2028 at the earliest. He suffers from heart disease and his lawyers have said that amounts to a life term.

 

WorldCom emerged from bankruptcy as MCI Inc., which was later acquired by Verizon Communications Inc. (NYSE:VZ - news). Ebbers agreed last year to forfeit almost all of his personal wealth in a settlement with WorldCom investors.