Out of millions of dollars. Medawar was extraordinarily, um, good at what he did. He was the consummate con man. [ music ] i would ask the, uh, witnesses to, uh, rise. Andand raise your right hand. In the summer of 2002, a ceo is called before congress, grilled about why his company has gone bust, and why shareholders have lost a total of 180 billion. Each of you is now under oath. Good afternoon, mr. Chairman. I served as ceo of worldcom for 17 years. During that time, i helped a Small Company rise to one of americas largest corporations. Bernard ebbers, former ceo of worldcom, symbolizes an era of corporate greed and fraud. Worldcom is one of the fastest Rising Companies in u. S. History. And one of the hardest to fall. The year is 1983. At a diner in the small town of hattiesburg, mississippi, local businessmen meet over coffee and donuts. Ma bells monopoly on Long Distance is breaking up. The businessmen see an opportunity to get in on the Long Distance game. In the early days, the hardest, uh, hardest job that we had was exexplaining to people and convince them that we could do the same thing that, uh, at t had been doing at that time. That we could provide long Distant Service and provide it for em for less money. Murray waldron is a mississippi entrepreneur and the idea man behind a new venture called Long Distance discount service, or ldds for short. Waldron is seeking investors to help him raise 650,000. Among the seven partners who sign on, is Bernie Ebbers. I was impressed with bernie. Uh, i think bernie, you know, had aaa good heart. He was hard working. He was business. I mean, hehe was not a lot of joking and fun, or anything like it. But, uh, i liked what i saw. At this point, Bernie Ebbers is totally obscure. Hes worked as a milkman, a bar bouncer, and a basketball coach. Then, he gets into motel business. This is ebbers first property. A humble little place on the edge of a mississippi highway. Here, ebbers earns the reputation as a penny pincher. Bernie told me a lot of times thatthat, uh, he didnt know anything about the Long Distance or the telephone business, but he knew how to read numbers. And he was a number cruncher. And even in his first the first motel, uh, you know, they cleaned the rooms, they did the washing, they cleaned all the linens and everything. But, you know, instead of hiring somebody to do it, he did it himself. Ebbers frugal ways served the startup well. Ldds needs to be lean and mean, in order to offer cut rate Long Distance. Before long, customers are beating a path to its door. Itit mushroomed fast. You know, it went from 240 to a thousand. And then justjust tens of thousands. And i couldnt even tell you how fast that growth was. A year and a half later, Bernie Ebbers moved from partner to president. Under ebbers watch, ldds goes on a buying spree, snapping up other Long Distance carriers throughout the south. And in just ten years, the Little Company that was born in a mississippi diner has grown into one of the Worlds Largest telecom companies, with the market capitalization of 6 billion. Ebbers gives the company a new name. Worldcom. A name that seems to fit ebbers outsized personality. He was sort of this brazen guy who just started doing all these acquisitions buying, you know, smaller companies. All of a sudden, he went for the big kahuna, which was mci and swallowed it, and everybody was sort of amazed because this was this tiny, you know, brash, Little Company in mississippi buying mci which was a household name. Worldcom has seven billion in annual revenue, a fraction of the annual revenue of its take over target, mci which brings in 18 billion. In business news, several federal agencies are going to work reviewing worldcoms proposed buyout of mci this would be the biggest corporate merger in u. S. Business history. And hehe called it worldcom didnt call it mci and, uh, he just sort of build it from there. In 1996, worldcom builds a sparkling new corporate campus. Its stock is a highflier, enriching both investors and employees. It was constant change, constant excitement. Glyn smith is an internal auditor at worldcom. The stock price, when i came over, was, you know, very, very high. So, a lot of the talk you hear around the water cooler was, you know, when you gonna sell your stock . It was exciting. It was fun. People enjoyed working there. Uh, so it was a good place to work. Bernie ebbers, a former High School Basketball coach, is now the toast of wall street. Well, people were excited. Partly because they had the backing of, um, Salomon Smith barney and citigroup, and there was sort of this sense that these were, you know, the new kids on the block, and they had a great idea, and, um, you know, they were gonna take over kind of the sleepy Telecom Business and shake it up. Bernie, you know, heheshes tough person. Hes got a big ego. And he could, man, he could eat that ego up. You know, when people start patting him on the back, tell him what a good company it was and everything. In 1999, Bernie Ebbers salary is 935,000 a year. But like many ceos, his salary is dwarfed by the income he receives from bonuses and stock options. That year alone, ebbers received 27 million worth of worldcom stock options. Despite his wealth, ebbers walks and talks like a good ol boy and earns a nickname the Telecom Cowboy. And thats sort of thethe vibe that he gave out around the office. You know, he walked around in pressed blue jeans and an unlit cigar and, you know, very casual, very folksy, kind of guy. Wall street loved that. He wasnt your typical suit and tie type ceo. And that really played well to the investors. It played well, certainly, down south. Um, andand i think wall street saw that as a refreshing change. I think some people thought he was, you know, a little goofy, maybe were laughing at him a little bit. But they thought, hey, you know, hes done pretty well. Hes built this company from nothing. And they just bought you know, they just swallowed a big whale. So, theres gotta be something to this guys strategy. The strategy is one of aggressive acquisition of worldcoms competitors. The other part of the strategy is cost control. Just like in the old motel days, when ebbers would clean rooms himself to save a buck, he still has the reputation as a skinflint. Everybody agreed that he was very hands on. Um, they liked to call him a micromanager. I mean, he was just very much in the weeds. He was very focused on money. Um, lot of people called him cheap. But he would also do other strange things, like count coffee filters to make sure, you know, that people werent drinking too much coffee. It was communicated throughout the company thatthat, uh, there would be no more free coffee. And i can remember the day. I came to the office and, sure enough, the movers were there. They hauled out the free, you know, thethe coffee pot and rolled in the machines. Youve seen the machines where you, you know, paid 35 cents, a cup drops down. His idea was sort of if youif you really hammer those pennies, then the dollars will take care of themselves. And he managed that way. But Bernie Ebbers is a study in contradiction. While he runs worldcom like miser, in his personal life, hes a spendthrift. When american greed returns, see how Bernie Ebbers freewheeling ways put investors fortunes in jeopardy. He loved buying things. Um, and he loved buying things with other peoples money. [ music ] in the late 90s, Bernie Ebbers, the ceo of worldcom, is flying high. His Long Distance company is a wall street darling. And nearly everyone seems to be shouting, buy and in worldcoms hometown of clinton, mississippi, Bernie Ebbers is a hero. Oh, everybody thought they had it going on. You know, they were gonna buy sprint and, uh, didnt look like there was any stopping for em. John mosley owns an auto body shot in clinton. Mosley and his Business Partners sank 35,000 into worldcoms stock. We felt great. Thought it was gonna be a good deal, you know. Aa good investment, something to grow a little bit of money for a long term, andand felt good about it. Bernie ebbers is feeling good, too, about worldcoms future. The Telecom Cowboy is pulling in 36 million a year. Most of it in the form of worldcoms stock options. All the while, ebbers is taking away employees free coffee. But when it comes to spending money on himself, ebbers spares no expense. Well, um, it might be easier to talk about what he didnt buy. Sean coffey is a lawyer who represents worldcom investors. He bought a hockey team. He bought a yacht building company. He bought lots of yachts. By 1996, he had, like, a 132 foot yacht, called the aquasition, instead of the acquisition. Thats his little play on worlds. The aquasition actually had a Remote Control that you could steer from a hot tub, which, um, i dont know if he ever used it. I imagine he did. But, he went from buying yachts, to actually buying a yacht building company. He bought the largest ranch privately owned ranch on the planet, up in canada. He bought a half a million acres of timberland in the southeast. Um, he bought a crawfish farm. He bought a golf course. He invested in a refrigerator trucking company. He invested in a soy bean and rice farm. He built a 5 million lodge in clinton, mississippi. So, um, it was conspicuous consumption in uppercase letters. The money to buy all these trophies comes from personal loans, underwritten by j. P. Morgan and citibank. And all the loans totaled 408 million. Ebbers secures them with worldcoms stock. He was getting all these loans based on, you know, the companys, um, uh, you know, reputation. And i think that was because he sort of saw these things asas the golden ring of having, you know, worked so hard and climbed so far. For the moment, ebbers is enjoying his farms and ranches and yachts. His life is built on the belief that worldcoms stock will continue to defy gravity. But theres trouble on the horizon. By early 2000, the outlook for the Telecom Business is stormy. The Long Distance business was just not a cash cow anymore. It once had been. But it had just been decimated, partly because there was so much competition. On wall street, the entire Telecom Sector takes a nose dive. In june of 1999, worldcom is trading at 62 a share. By the end of 2000, its tumbled 70 percent to just 18 a share. But Bernie Ebbers remains an aggressive cheerleader for worldcom. Is worldcom a financially sound, solid, surviving company . Absolutely. We are Free Cash Flow positive. We announced that today. At a Shareholders Meeting in 2001, ebbers says worldcoms best days are yet to come. The machine that is producing the revenue, or the units, is doing very well in the company. In large part, because of ebbers salesmanship. Worldcom still has many true believers, especially back home in mississippi. Id never invested in the stock market, uh, prior to my venture into worldcom. Sam owens doesnt know much about picking stocks. An insurance salesman, owens has always stuck with real estate for his investments. But when worldcoms stock drops, owen figures the market has overreacted. He think worldcom will rise again. Their stock had gone down, uh, in the 17 range, and i decided toto take the plunge and bought a considerable amount ofof the shares. Owens timing proves to be disastrous. In 2001, worldcoms stock tumbles more than 30 percent. Like thousands of investors across the country, owens is watching his investment dwindle. And on wall street, analysts are getting nervous. Citigroup, through its travelers arm, loaned him a half billion dollars through some family trusts, so he could buy lots of things. Well, those loans were secured by the value of his worldcom stock. The banks tap bernie on the shoulder and request their money back. Bernies in trouble. To pay back the banks, he may have to sell his worldcom stock. A margin call. And when the ceo begins to sell a lot of stock, investors get nervous because they take it as a sign that the ceo thinks the future isis poor for the company. And you had this, sort of, spiraling circumstance. Worldcoms board of directors desperately wants to avoid a fire sale of worldcom stock. So, to bail ebbers out, the board approves of 408 million loan to its ceo. The move attracts the attention of the securities and exchange commission, which wants to know more about the bailout. And thats not all. The sec is highly suspicious of worldcoms financial reporting. Even amid tough times in the Telecom Business, worldcom is issuing glowing financial statements. Thank you for coming here tonight in march of 2002, ebbers sits down with cnbc anchor, maria bartiromo. Bernie, nice to have you back with us. Thank you for having me. What do you want to say to the shareholder, out there, thats holding worldcom, that just got the news that the sec has conducted an informal inquiry. Uh, itits a very difficult thing to know what to say, because i dont have enough definition to what theyre asking. Uh, it was no anticipated. Uh, its one of those things that you have to live through. Its a very time consuming prospect, cause they ask a lot for a lot of information. But the thing that i feel very confident in, inin my heart of hearts, is that there are not issues that our Share Holders ought to be concerned with, with respect to the investigation by the sec. I would be the first to tell them if i thought there were some issues. He couldnt stand to lose. He wanted to make sure that they continued to be the company that was reporting profits. You know, he had sort of built this empire and he wasnt about to see it fall apart, just because the business hed gotten into was suffering. One month later, on april 29, 2002, worldcoms board asks ebbers to resign. The reason . All of ebbers loans, which support his lavish lifestyle. How are you . Im hanging in. Good. In jackson, mississippi, wlbt, the nbc affiliate, nabs an interview with the fallen ceo ebbers is asked about the 408 million he owes worldcom. That will be paid back, 100 percent plus interest, will be paid back. What do you say to the person who had faith in you a long time ago, when you were ldds and, uh, invested in your stock went up to what . Over 80 at one point . Mmmhmm. Andand all of a sudden, its two, and theyre left all in the bag. What do you say to thatthat person . Well, you tell me, what do i say . I feel like crying. Uh, i, uh, its terrible. Its sad. Uh, but i guess i would say, uh, is, if at all possible, hang on. I can tell you, if i had spare money, id be buying today. Go out and buy . Absolutely. For 2 or whatever it is . Absolutely. You could really make some real money. Ebbers is a pitch man to the very end. But worldcom hasnt hit rock bottom, yet. When american greed returns, this man blows the cover off an 11 billion accounting fraud. Ii think that day was really when the, uh, house of cards began to fall. [ music ] [ ] think you need to buy expensive skincare products to see dramatic results . Try olay skin care. Just one jar of microsculpting cream has the hydrating power of 5 jars of a prestige cream, which helps plump skin cells and visibly smooth wrinkles. While new olay retinol24. Provides visibly smoother, brighter skin. For dramatic skincare results, try olay. And now receive 25 off your purchase at olay. Com brand power. Helping you buy better. Worldcom, the telecom giant, has seen better days. The ceo, Bernie Ebbers, has been sacked. Hes nearly half a billion dollars in debt. And worldcom stock is in a free fall. We rode it all the way down to the 2 range. I had it in my mind if it could go back to five we could cash out and break even, and, of course, it never did. It became worthless. Investors, like sam owens and even worldcom employees, are beginning to wonder if the company is a fraud. Part of being a good auditor is whats called professional skepticism. Glyn smith is an internal auditor for worldcom. Someone from management can tell you one thing and, as an auditor, youre obligated to be somewhat skeptical about that. In the spring of 2002, smith and two colleagues see something highly unusual in worldcoms accounting. What they see could be the death nail for worldcom. The companys leases for phone lines are booked as a capital expense. When you capitalize something, you recognize the expense over a much longer period of time. Ordinarily, these leases are booked as an operating expense. An expense that would lessen the companys income every month. Worldcoms slight of hand is making the company appear much healthier than it really is. Whereas, before, we would expense the cost of those lines on aon a monthly basis, all of a sudden, were taking those costs, were moving them to the balance sheet, and were expensing them over a seven, ten, fifteen year period instead. So, the result of that, what happens is your expenses in a given period are fewer, your net incomes greater. In this case, smith discovers worldcom has overstated its profits by a staggering 3. 8 billion. Smith confronts worldcoms chief financial officer, Scott Sullivan, about the entries. Sullivan tries to defend his accounting as a way to save worldcom. Well, ii think that day was really when the, uh, house of cards began to fall. Lets head to the news desk where ann on june 25, 2002, worldcoms board goes public with the investigation. There is big trouble this morning for the nations second biggest Long Distance provider. Worldcom said last night that an internal investigation has uncovered massive accounting fraud, almost 4 billion in disguise expenses, in what could become one of the biggest accounting scandals in u. S. History. Worldcoms board fires cfo, Scott Sullivan. But the big question