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The U.S. Court of Appeals for the Second Circuit on Friday affirmed the conviction and 25-year prison sentence of Bernard J. Ebbers, the former CEO of WorldCom whose reputation and business were destroyed by an $11 billion accounting fraud. Judge Ralph K. Winter, writing for a unanimous panel in U.S. v. Ebbers, 05-CR-4059, rejected Mr. Ebbers’ arguments that federal prosecutors were allowed to manipulate the trial because Southern District Judge Barbara Jones would not order them to grant immunity to three defense witnesses who were under investigation. The decision will be published Friday. The witnesses, all former WorldCom executives, invoked their Fifth Amendment rights and declined to testify. But Judge Winter said their testimony would not have helped Mr. Ebbers’ cause. As for his 25-year sentence, Judge Winter noted that although it was “harsh” � “longer than the sentences routinely imposed by many states for violent crimes, including murder, or other serious crimes such as serial child molestation” � it was “not unreasonable” considering Mr. Ebbers’ primary responsibility in the fraud. “The securities fraud here was not puffery or cheerleading or even a misguided effort to protect the company, its employees, and its shareholders from the capital-impairing effects of what was believed to be a temporary downturn in business,” the judge wrote in the court’s 47-page opinion. “The methods used were specifically intended to create a false picture of profitability even for professional analysts that, in Ebbers’ case, was motivated by his personal financial circumstances.” Mr. Ebbers’ attorney, Reid H. Weingarten of Steptoe & Johnson, said he was “deeply disappointed” by the ruling and described the government’s immunity tactics as “cynical manipulation.” “We are not giving up and won’t stop fighting until Bernie Ebbers is completely vindicated,” he said in a statement. Mr. Ebbers’ chief argument was that the government’s refusal to grant immunity to three former WorldCom executives scared them from testifying on his behalf. Mr. Ebbers asked Judge Jones to order the prosecution to grant immunity, but she declined. Mr. Ebbers contended that the executives would have helped him show that he was not involved in the fraud and that the government’s star witness, former Chief Financial Officer Scott Sullivan, was to blame. At trial, Mr. Weingarten called Mr. Sullivan a liar and said the three witnesses would have “blown up” his credibility. Judge Winter offered a different view, concluding that three witnesses would, in many respects, have been less than helpful to Mr. Ebbers’ case. Court adopts test The judge noted that the Second Circuit had not previously adopted a standard of review for a district court decision not to compel the government to choose between giving immunity to defense witnesses or forgoing its own use of immunized testimony. The court decided to follow the Third, Seventh and Tenth circuits in adopting an abuse of discretion standard. The test, the court said, has two prongs: whether the government used immunity for a tactical advantage, or overreached and essentially forced a witness to invoke the Fifth Amendment; and whether the witness’ testimony would have been material, exculpatory and not obtainable from other sources. Judge Winter said Mr. Ebbers’ ability to meet the first prong of the test was “in doubt.” However, he said, the court need not consider that question further because Mr. Ebbers could not show that the absence of the three witnesses’ testimony would have “affected the total mix of evidence before the jury.” The court also rejected arguments that the indictment was flawed because it did not allege that the underlying accounting at WorldCom, which involved shifting costs to the company’s capital accounts in order to meet its estimated quarterly financial numbers, was improper under Generally Accepted Accounting Principles. “To be sure, and to repeat, differences of opinion as to GAAP’s requirements may be relevant to a defendant’s intent where financial statements are prepared in a good faith attempt to comply with GAAP,” Judge Winter wrote. “The rules are no shield, however, in a case such as the present one, where the evidence showed that accounting methods known to be misleading � although perhaps at times fortuitously in compliance with particular GAAP rules � were used for the express purpose of intentionally misstating WorldCom’s financial condition and artificially inflating its stock price.” Sentence justified Judge Winter offered a simple reason as to why Mr. Ebbers deserved a longer sentence than Mr. Sullivan, who received five years, and other executives, who received one year and one day or less. “All of those named above cooperated and pled guilty,” the judge said. “Ebbers did not. Moreover, each was a subordinate of Ebbers. Ebbers, as CEO, had primary responsibility for the fraud.” WorldCom had 90,000 employees in 2000. As the company’s reported revenue soared, so did Mr. Ebbers’ personal expenses: He borrowed $400 million, using WorldCom stock as collateral. The debt left Mr. Ebbers in the position of having to prop up WorldCom’s financial statements for his own benefit, the court said. He was eventually dismissed as CEO and the company filed for bankruptcy. Mr. Ebbers’ sentence has been stayed pending appeal. At age 64, he may spend the rest of his life in prison. What might have been was not lost on Judge Winter, who noted Mr. Ebbers’ entrepreneurial skills and his previous careers as a teacher, warehouse manager and motel operator. “There is an element of tragedy here,” the judge wrote. Judges Jose Cabranes and Barrington D. Parker concurred on the ruling. Assistant U.S. Attorney William Johnson argued the appeal for the government. Tom Perrotta can be reached at [email protected]

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