CHAPTER 1 A Dark Cloud People don't wake up and say, "I think I'll become a criminal today." Instead, it's often a slippery slope and we lose our footing one step at a time. It's the end of summer 2001. White linen tablecloths blow in the warm breeze of the evening. Candles glow softly throughout the backyard and patio. The weather is unseasonably gentle, a break from the usually sultry Mississippi humidity. My husband Lance and I are at the home of David Myers, the WorldCom Controller, who oversees the accounting department. We're attending a shower for Scott Sullivan, the company's Chief Financial Officer, and his wife Carla. Recently, they adopted a beautiful baby girl, their only child and the reason for our celebration. Carla has been in and out of hospitals, battling diabetes, and has come close to death several times. Many of us know about her struggles with her health. The office has been buzzing with excitement at their good news. Some 20 people have come together at David's home-executives reporting to Scott and spouses, as well as Bernie Ebbers, our CEO, and his wife Kristie, who are helping to host the shower. The Myers home is beautifully decorated, reminding me of one of the fine homes in Southern Living. Lance and I admire each room as David takes us on a tour, excitedly telling us about the changes he and his wife made after moving in. "We're trying to move Jack from his crib to the big bed," he says, pointing to his son's crib, still sitting in his room. Scott and Carla are showing off their baby girl. With plump rosy cheeks, she looks like the perfect Gerber baby. We watch as they take turns feeding her a bottle. Scott, the man known as intensely serious at work, is suddenly very nurturing, almost giddy. Only a few months before, Lance and I were also blessed with a beautiful baby girl, and I've just come back to work from maternity leave. Since our babies are only months apart, it's been fun to talk to Scott and Carla about how our girls are growing, especially because Scott and I usually talk only about business. For my daughter's birth, they gave us a small doll wearing a beautiful pink dress with smocking across the collar. It sits on a white shelf above my daughter's bed. And Carla recently brought her daughter to the office wearing the dress Lance and I had given her. Everyone ambles about, visiting and sampling the hors d'oeuvres. The tables scattered about the lawn overlook a beautiful lake. After dinner, we stand in a large circle on the back patio. The men smoke cigars and guests take turns telling humorous stories about old times. In typical fashion, Bernie Ebbers chews on an unlit cigar and occasionally throws out one of the one-liners he's famous for, making everyone laugh. The atmosphere is full of warmth and good-hearted banter, but an unseen cloud hangs over this seemingly perfect picture. Within two years, with the exception of myself and one other guest, every employee present will be gone from the company. Three will be criminally indicted for financial-statement fraud, and I will be thrust into the center of a storm. That night reminds me that numbers and accounts are only part of what hung in the balance. What happened touched real people: The man who lost his children's college fund, the elderly lady whose life savings disappeared, the employee living paycheck to paycheck and struggling to find another job. It also affected the families of those involved in the wrongdoing, who, on an emotional level, would endure the pain and serve prison sentences along with their loved ones. So happy and full of life at the dinner party, the faces of Kristie, Carla, and David's wife Lynn-the spouses of three of the men indicted-will soon show only pain and sorrow.

The Slippery Slope

Sow a thought, reap an action; sow an action, reap a habit; sow a habit, reap a character; sow a character, reap a destiny. -Scottish author Samuel Smiles  
It's October, 2000, a year before the dinner party. The accounting team at WorldCom has just closed the company's books for the third quarter. David Myers is shocked by the numbers. Line cost expense-what the company pays to lease telecommunications lines and to originate and terminate telephone calls, its single largest expense-is too high by hundreds of millions of dollars, driving earnings well below Wall Street expectations. Someone must have made an error. But where? David is a Mississippi boy who's done well for himself. Tall with a slim build, he played basketball in high school and earned a degree in accounting from the University of Mississippi in Oxford. He started his career in public accounting with Ernst & Whinney (now Ernst and Young), one of the country's most prestigious firms, and then moved into industry with Lamar Life Insurance in Jackson, the state capital. Hard-working and friendly, David quickly moved forward professionally. Things have been going well for him. He's happily married with three children, two from a previous marriage. In his early 40s, David has been able to achieve some financial security for his family. By working hard and putting in long hours, he's moved up the corporate ladder to Senior Vice President, commanding an annual salary close to a quarter of a million dollars. As the Controller, he reports directly to Scott Sullivan, the Chief Financial Officer, and has hundreds of finance employees under his charge. David joined WorldCom in 1995. In his first years with the company, the stock soared. By 1999, when the stock hit a record high, his stock options were worth over $15 million. David has received some $700,000 in pre-tax profit by exercising his options. He and his wife moved into a lake-front home in an upscale neighborhood, and purchased a home for his wife's parents, but David has held the remainder of his options. Now that potential wealth seems at risk of evaporating. The high-flying bull market of the 1990s is on a fast downhill slide. The Internet stock bubble that burst in March, 2000 is about to be followed by a less publicized but much larger and more devastating collapse: Telecom. The entire sector is in disarray, but many in the industry believe the problems are temporary. Still, the figures glaring back at David are far worse than expected. Are the numbers he sees an error or a train wreck in progress? David isn't looking forward to presenting such bad news to his boss Scott Sullivan, especially since he has no idea why the numbers are so abysmal. But he knows he can't put it off. WorldCom soon has to release its quarterly earnings to the public. He walks through the halls joining the building where the accountants work with the one housing the executive suite, where Bernie and Scott have large adjacent corner offices. As he walks through the double glass doors to the suite, he sees the lighted bookcases he's seen so many times on his way in, filled with company memorabilia Bernie has collected over the years, including items marking each acquisition. David takes a deep breath and walks into Scott's office. The glass windows taking up the entire wall behind Scott's desk provide a beautiful view of the small man-made lake, fountain, and walking trail below. But David is in no mood to admire the view. He might as well get right to it: The numbers are bad. He can't explain why. His department has checked and re-checked them. The accountants can't find any errors. Scott isn't happy. This is unacceptable news. Surely, someone made a mistake. David is sent back to his office to go through the numbers again, or do whatever it takes to find and fix the errors. He asks several of his accountants to retrace their steps, but even the second time around, they find no mistakes. He returns to Scott with the news, but Scott still refuses to accept the numbers, insisting there's a mathematical mistake. Management is now only days away from having to release financial results to the public. Scott and David know that if they report these results, WorldCom will not meet the earnings guidance executives previously issued. The stock price will get hammered, and analysts will downgrade their opinions, which could send the company into a downward spiral. And WorldCom depends on its high stock price to acquire companies. The pressure is intense and building every hour. What are we going to do, David asks Scott. Scott is at a dangerous crossroads. He rationalizes that the cost of telling the truth is too high. In any case, there must be an error, he thinks, and it'll surely correct itself the following quarter. Change the numbers, he instructs David. Reduce line-cost expense so that the company can meet earnings guidance. "While [Scott] didn't believe that this was the right and appropriate thing to do," David later recalled, he said "this is what we needed to do at the time." Scott's instructions are stressful for David. But David has always felt loyal to his boss, so he, too, rationalizes. This will be temporary. There must be an error. Scott is sure of it. Either way, WorldCom is just going through a tough time. The industry will soon turn around. To change the financial statements, David will have to pull several of his mid-level accountants into the plan. David and Scott are at high enough levels in the company that they don't actually make accounting entries in the system. The trusted inner circle will have to grow. David decides to relay Scott's message to his right-hand lieutenant, an accounting director named Buford (Buddy)...