New York, Sept. 5: Federal prosecutors said on Wednesday that their investigation of accounting practices at WorldCom would result in new charges and indictments against executives involved in the company’s effort to disguise billions of dollars of expenses as profits.
Two executives who were charged in the case last month were arraigned on Wednesday and pleaded not guilty.
David Anders, an assistant US attorney, told US District Court Judge Barbara Jones at the arraignment that investigators were analysing about 150 boxes of evidence that would be turned over soon to her.
The possibility of new charges suggests that a plea deal reached last week with three former WorldCom executives continues to produce results for prosecutors. The deal was reached with David F. Myers, WorldCom’s former controller, and two former accounting officials, Betty L. Vinson and Troy M. Normand.
Under that deal, the executives agreed to provide testimony about other executives involved in an accounting scheme that disguised more than $ 7 billion of expenses and resulted in an abrupt financial collapse and bankruptcy filing by WorldCom, according to people involved in the investigation.
“The government is continuing its investigation and we do plan to supersede at some point to add charges to the same scheme and potentially to add defendants,” Anders said in court.
At the hearing, Scott D. Sullivan, WorldCom’s former chief financial officer, and Buford Yates Jr., the former director of general accounting, pleaded not guilty to several counts of securities fraud and filing misleading information with the Securities and Exchange Commission.
David Schertler, a lawyer for Yates, said on Wednesday that he was seeking to shift his client’s trial out of New York to Mississippi, where Yates resides. Yates was released on Wednesday on a $ 500,000 bond.
Irvin B. Nathan, Sullivan’s lawyer, declined to comment after the hearing. Sullivan was arrested last month and later released on a $ 10 million bond secured by his home in Boca Raton.
The judge set a pretrial hearing for December 9.
In the meantime, WorldCom, one of the largest long-distance companies and carriers of Internet traffic, is trying to operate its business in a relatively normal manner as it seeks to emerge from bankruptcy.
The company, which is based in Clinton, sought bankruptcy court approval on Wednesday to make severance payments to employees laid off before its filing. Severance payments to thousands of such employees were limited to $ 4,650 each, even though in some cases WorldCom owed employees double or triple that amount.
“We view this motion as a very important step toward justice for these folks,” said Damon A. Silvers, associate general counsel at the AFL-CIO. “We are certainly very pleased to see it.”
WorldCom is also effectively reducing the amount it will pay to 19 executives who were terminated before the company filed for bankruptcy. Originally, the executives were to receive $ 900,000 in “enhanced severance,” but according to the motion the company now intends to pay them only what they would be entitled to under WorldCom's normal severance policies.
A hearing on WorldCom’s motion is scheduled for October 1.
In a separate development, US bankruptcy court judge Arthur Gonzalez approved an agreement reached on Wednesday between WorldCom and Verizon Communications, the large provider of local telephone service. WorldCom plans to pay $ 35 million for fees Verizon collected from customers that it connected to WorldCom’s local and long-distance services.