Ebbers was found guilty of orchestrating the $11-billion accounting fraud after his former chief financial officer testified that Ebbers had instructed him to hide expenses and overstate revenue in order to meet market expectations of the telecommunications company. Although the conviction was anticipated, the sentence was not.
The 63 year old was sentenced to 25 years in jail for his role in the downfall. This comes after he had agreed to pay $5.5-million cash and hand over his Mississippi mansion and other assets worth $40-million to resolve claims filed by WorldCom shareholders. The only thing he kept was a smaller Mississippi house for his wife, $50 000 cash and a retirement account. That said, Ebbers has only repaid a small portion of his $408-million personal loan from WorldCom.
Regardless, Ebbers' sentence is undoubtedly one of the toughest prison sentences handed out for a white collar crime conviction. Particularly bearing in mind Ebbers' age and heart condition, which was cited by his defence lawyers, along with the $100-million he has donated to charity, while pleading for leniency in sentencing.
According to the judge, these factors were taken into account when sentencing as, by her calculations, Ebbers should have faced 30 years to life in prison. Due to the receipt of 170 letters from friends and neighbours describing Ebbers' good deeds, the judge knocked five years off his sentence. The judge also specified that Ebbers must serve at least 85 percent of his prison term, which means that the earliest he will be eligible for release is at the age of 84.
Sounds harsh? Not really. The sentencing of Ebbers does not change the situation of shareholders and employees who lost more than $100-billion in stock value, 17 000 jobs and their entire retirement savings.
The Ebbers sentence comes as the latest strike in the United States government's campaign to hold chief executives and boards accountable for their actions and the violations of shareholders' interests. So far, the government is doing a sterling job in sending this message out loud and clear.
Earlier this year, John Rigas, the 80 year old founder of Adelphia Communications, received a 15-year prison sentence. Martha Stewart was sentenced to five months in prison, five months home confinement after release, two years probation and a $30 000 fine for lying to investigators about the sale of stock in 2001. Let's face it, if she can't get away with it, who can?
Now we wait for the next batch of trials, convictions and sentences. Dennis Kozlowski, the former chief executive officer of Tyco International, is to be sentenced next month on charges of larceny and then the Enron trial will begin…
Kenneth Lay and Jeffrey Skilling are scheduled to go on trial for their roles in the collapse of Enron in January 2006. If they are convicted of all charges, the Ebbers sentence has a major impact on the punishment that these men could receive, as his sentence sets the benchmark for the penalty for white collar crime.
In a local context, we have also seen the beginning of increased measures to punish white collar crime.
Peter Gardener, former chief executive of LeisureNet, has been convicted of 14 charges of VAT fraud and one of insider trading. He has been fined R100 000 for each count of fraud, which adds up to R1.4-million, and R500 000 for insider trading. He has been jailed for two months for each of the 14 charges which have been conditionally suspended for five years. He has been sentenced to 14 months correctional supervision and is required to do 224 hours of community service. He has to pay R1-million into the state's Asset Forfeiture Unit's account and is also under house arrest.
But he isn't in the clear yet. Next year, he will appear in the High Court on charges of fraud and alleged contraventions of foreign exchange controls, and LeisureNet liquidators have launched a R1.25-billion damages action lawsuit against all 12 LeisureNet directors.
Admittedly it doesn't sound so bad relative to Ebbers' predicament, but the truth of the matter is when LeisureNet was liquidated in October 2000, it only had debts amounting to R850-million compared to the $30-billion debts facing WorldCom.
Then there is the Tigon scandal. To date there have been four convictions as a result of the investigations into the business affairs and fraud totalling R160-million at Tigon, Shawcell, PSC Guaranteed Growth Limited and Galahad Chartered Accountants Inc.
These convictions include the sentencing of Jack Milne, the former Managing Director of PSC Guaranteed Growths Limited Funds, and Andries Geyser, Chairman of Tigon from July 1995 to March 2000 and of Shawcell Communications from July 1999 to March 2000. Milne was sentenced to an effective five years imprisonment but will probably only serve one year in prison in return for testifying against former Tigon boss, Gary Porritt and Sue Bennett, both former directors of PSCGG and Tigon. Geyser on the other hand was sentenced to a fine of R50 000 or one year imprisonment.
After having the Johannesburg Regional Court reject his application to have the case thrown out, Porritt was slapped with a 3 160 page charge sheet that alleges that he and Bennett helped cook the company books of Tigon and Shawcell. If the allegations are true, the fraud outlined in the charge sheets could easily become South Africa's most extensive financial crime yet, with its architects having conned the JSE, the Reserve Bank, the South African Revenue Services and thousands of investors out of hundreds of millions of Rands over many years.
Both Porritt and Bennett will go to trial on 23 January 2006 for charges ranging from fraud, racketeering and Companies Act violations to share manipulation.
So what does this all mean?
Basically it means that life has just got tough for the leaders of our business world – both those that are honest and those that are corrupt. The sentencing of Ebbers is a massive wake up call to all corporates and their leaders, both locally and globally. The “I didn't know” defence just isn't going to cut it anymore. CEOs and boards will no longer be able to claim ignorance of material aspects of the companies whose shareholders they represent and will be called to account for their actions like any other criminal.
Commenting on the sentence of Ebbers, Ken Boehm, chairman of the National Legal and Policy Centre said: “Twenty thousand people lost their livelihoods because of Ebbers' greed. Ordinary people lost $600-million from their pension plans because Ebbers did not have enough houses, boats or automobiles. This is a victory for individual responsibility, which has been significantly eroded in our society. The largest financial fraud in American history didn't just happen. It resulted from the specific actions of specific individuals, who are now being made accountable.”
I hope the same principle will apply to all individuals responsible for such chaos and greed who, from now on, are going to be made responsible and held accountable.
Jayne Mammatt, senior manager of Governance & Sustainability at Ernst & Young