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Former WorldCom Inc. executives Scott Sullivan and Buford Yates Jr. have been indicted on securities fraud and other charges for allegedly hiding billions of dollars in costs from investors and auditors. And in an indication that former WorldCom controller David F. Myers and two other accounting executives may be cooperating with the government, prosecutors released a notice of intent to waive indictment for Myers and the executives should the three agree to be prosecuted by information. The indictment came four weeks after Sullivan, the company’s one-time chief financial officer, and Myers, its former controller, were arrested on a criminal complaint, handcuffed and brought to U.S. District Court in Manhattan to enter initial appearances in what is believed to be the largest accounting fraud in American history. Sullivan, 40, and Yates, 46, the former director of general accounting, were charged Wednesday with conspiracy to commit securities fraud, securities fraud and five counts of submitting false filings with the Securities and Exchange Commission. These are the same charges levied against Sullivan and Myers in the criminal complaint filed Aug. 1. In addition to Myers, the two other co-conspirators mentioned in the indictment, but not charged, were Betty L. Vinson and Troy M. Normand, both former employees in WorldCom’s general accounting department. Yates, who supervised Vinson and Normand, allegedly helped Sullivan and Myers hide more than $3.8 billion in “line costs,” the fees WorldCom paid to third parties for leasing communications lines that were not part of the company’s own network. By not including the line costs in the balance sheet shown to investors on Wall Street, the company was able to maintain a higher stock price, the government charges. Sullivan, the indictment alleges, directed Yates, Myers, Vinson and Normand to “falsely and fraudulently book certain entries in WorldCom’s general ledger, which were designed to reduce WorldCom’s reported line costs and thereby increase WorldCom’s reported earnings.” The indictment also states that Yates and his subordinates made the false entries, in spite of the fact that “Neither Sullivan nor Myers provided Yates, Vinson or Normand with any supporting documentation or any proper business rationale for the entries.” Sullivan, as well as other WorldCom employees, failed to disclose they had changed the company’s accounting methods when confronted by the company’s external auditors, Arthur Andersen. The telecommunications giant filed for Chapter 11 bankruptcy in the Southern District of New York on July 21. It was the largest bankruptcy filing in U.S. history, and since then the company has disclosed an additional $3.3 billion in inflated profits. The Federal Rules of Criminal Procedure require an individual to be charged pursuant to an indictment issued by a grand jury or by an information, which does not require a grand jury vote. Traditionally, when federal prosecutors are seeking the cooperation of a potential defendant, and believe they have enough evidence to indict that individual, the prosecutors and defense lawyers will often try to hammer out a cooperation agreement in advance, which saves the government the trouble of obtaining a grand jury indictment. Part of those negotiations typically include reaching an agreement on what will be filed in an information that establishes the charges to which the defendant will ultimately plead guilty. Although there are some exceptions, in the majority of cases, the agreement to waive indictment and be prosecuted by information augers a cooperation agreement and a guilty plea. NOTICE OF INFORMATION Wednesday’s release by the government of a “notice of intent to file an information upon the defendant’s waiver of indictment” indicates simply that the government expects Myers, Vinson and Normand to waive. The filing of the notice avoids an appearance in the magistrate’s court for the three, whose case will now be assigned directly to a district court judge. The notices were signed by Assistant U.S. Attorney David B. Anders and the attorneys for the three executives, N. Richard Janis of Janis, Schuelke & Wechsler in Washington, D.C., for Myers, and Joseph M. Hollomon of Mississippi for Vinson and Normand. David Schertler, of Coburn & Schertler in Washington, D.C., represents Yates. Irv Nathan of Arnold & Porter in Washington, D.C., who represents Sullivan, has said the prosecution is “a rush to judgment.” Sullivan is free on $10 million bail. In all likelihood under federal sentencing guidelines, he would receive less than 10 years in prison for the charges against him.

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