WorldCom ex-CFO pleads not guilty

NEW YORK (CNN/Money) -- Ex-WorldCom CFO Scott Sullivan pleaded not guilty Wednesday to helping the bankrupt telecommunications company hide more than $5 billion in expenses, while prosecutors said that more people may be charged in the case.

A grand jury indicted Sullivan and Buford Yates, WorldCom's former director of general accounting, last week on charges of securities fraud, conspiracy to commit fraud, and filing false statements with the Securities and Exchange Commission.

Yates also pleaded not guilty an arraignment Wednesday.

During the hearing in federal district court in downtown Manhattan, prosecutors said the WorldCom investigation is ongoing and more charges may be brought against Sullivan and Yates, a spokesman for the U.S. Attorney's office for the Southern District of New York said.

In addition, more people may be charged in the case, the spokesman said, but provided no details.

Sullivan's attorney Irv Nathan had no comment before the plea, and could not be reached for comment later in the day. Yates' attorney David Schertler could not be reached for comment.

The next hearing in the case is scheduled for December 9.

No criminal record

Sullivan had been in plea talks with prosecutors but balked at terms of a potential agreement because it included admitting to charges that carry a jail sentence that could exceed 10 years, the Wall Street Journal reported last week.

Sullivan may decide to take his chances with a jury because he has no criminal record, a wife with a serious illness, and a two-year-old child, according to previous press reports.

Each man faces a total of 25 years in prison and fines of $2.25 million if convicted of all counts.

The arraignment comes a day after federal prosecutors said they were trying to negotiate a plea agreement with WorldCom's former controller, David Myers, and won a later deadline for an indictment. The government originally had until Tuesday to obtain the indictment or get a continuance in the case.

Investigators had also been talking to Yates in an effort to obtain more information about what other company officials knew about its accounting practices, the Journal report said.

Accounting problem

WorldCom first disclosed an accounting problem on June 25, when it said it would have to restate about $3.8 billion in expenses from the previous five quarters.

CEO John Sidgmore said at the time that the restatement would have no impact on cash flow. But rising alarm among investors and creditors eventually led the telecom to file for Chapter 11 bankruptcy protection.

Last month, the company expanded its financial restatements to about $7.2 billion after a further review of its own books.

The scandal, along with the earlier collapse of energy trader Enron Corp., proved a double-barreled blow that has shaken confidence in corporate America and the U.S. financial markets.

According to the indictment, Sullivan, in an effort to help WorldCom's quarterly earnings meet Wall Street expectations, directed others, including Myers and Yates, to shift some lease payments from the income statement to the balance sheet in various ways, to keep quarterly expenses low enough to help WorldCom's earnings meet Wall Street expectations.

Meanwhile, a House subcommittee investigating WorldCom's collapse is questioning Citigroup about hundreds of thousands of shares in initial public offerings its brokerage unit, Salomon Smith Barney, gave to WorldCom executives, including former CEO Bernard Ebbers.

Ebbers received allocations of shares in high-profile IPOs such as United Parcel Service, now-bankrupt Rhythms NetConnections, and Williams Communications Group, Salomon records turned over to the House Financial Services Committee showed.