Bernie Ebbers: the downfall of the Telecom Cowboy

Bernie Ebbers had the starring role in the greatest rags-to-riches story in US corporate history. A plot twist at the end turned it into a different kind of morality tale.

When Bernie Ebbers’ former company, Worldcom, was on the brink of collapse in 2002, the deeply religious telecoms tycoon put in an appearance at his local Baptist church in Mississippi where he regularly attended services and taught Sunday school. Ebbers, who died this week aged 78, loudly assured the congregation that “you aren’t going to church with a crook”, notes Reuters. A federal jury in Manhattan thought otherwise – finding him guilty of orchestrating an $11bn accounting fraud – and the “Telecom Cowboy” was sent down for 25 years. 

From milkman to titan

The length of the sentence shocked many at the time. But this was no ordinary corporate implosion, says the Financial Times. Until eclipsed a few years later by the collapse of Lehman Brothers, Worldcom was “the biggest bankruptcy in US history”; investors lost billions. What’s more, “the fraud undid what was seen as one of the great US business rags-to-riches stories of its era”. Ebbers spent nearly two decades transforming a tiny company originally called Long Distance Discount Service into the country’s second-largest telco after AT&T, completing more than 70 takeover deals to do it. In 1997, when it outbid BT to buy MCI for $37bn, the deal was billed as “the largest corporate merger in history”. 

Ebbers was “a big man in every sense of the word”, says Sky News. He stood at six foot four inches but, typically dressed in a Stetson and cowboy boots, “looked bigger”. Born in 1941 in Edmonton, Canada, he was the son of a travelling salesman who relocated his family to the US. Young Bernie attended school on a Navajo reservation in New Mexico, later returning to Canada to take up jobs as a bouncer and milkman. Those jobs didn’t appeal, so he headed back to the US, becoming first a basketball coach and then a motel-owner in Mississippi. 

“In 1984, the opportunity do something bigger came along.” Reagan’s deregulation threw the telecoms sector open and Ebbers was invited by a member of his local prayer group to get stuck in. Ebbers realised early on that there was money to be made owning fibre-optic lines and Worldcom emerged as a major force in the internet revolution. All the while, Ebbers cultivated “the image of a simple ‘aw shucks’ Southern Baptist”. For many years he didn’t use a phone and claimed “he only sent his first email in 1999” – the year Worldcom’s stock reached a peak value of $160bn. 

The ostrich defence fails

The unravelling, when it came, was swift, says the Financial Times. Ebbers’ fortunes were tied to the share price: “He had repeatedly borrowed money against the value of his Worldcom stock to buy land, other companies and yachts.” When the shares fell after the dotcom bust amid worries over its debts, Ebbers implored staff to “hit the numbers”. The upshot was that Worldcom began “flattering its earnings”. Ebbers was ousted in 2002 owing $400m to the business. At his trial he deployed the “ostrich defence” – claiming to know nothing about it. But his “folksy manner” failed to swing the jury, particularly after his CFO, Scott Sullivan, and other directors testified against him. 

Ebbers, who was released from prison on compassionate grounds a month before his death, continued to protest his innocence, blaming instead “his subordinates”, says The Daily Beast. And right to the end he retained the support of many ordinary Worldcom workers. “It’s easy to portray Ebbers as a supervillain, but the reality is closer to a Shakespearean tragedy,” noted one punter this week. “His heart was in the right place, but he paid dearly for his arrogance.” 

Recommended

Daniel Loeb: fiery activist goes on a buying spree
People

Daniel Loeb: fiery activist goes on a buying spree

Daniel Loeb is known as a sharp-tongued investor who buys stakes in companies and then shakes them up. But the pandemic caught him flat-footed and he …
14 Sep 2020
Great frauds in history: how Joyti De-Laurey became “the Picasso of con artists”
People

Great frauds in history: how Joyti De-Laurey became “the Picasso of con artists”

Joyti De-Laurey forged the signatures of her bosses at Goldman Sachs and started writing cheques to herself. Over many years, she netted £4.3m.
10 Sep 2020
Forrest Li : “Singapore’s Steve Jobs” shoots for the stars
People

Forrest Li : “Singapore’s Steve Jobs” shoots for the stars

Forrest Li was there when Apple founder Steve Jobs delivered his famous Stanford graduation speech. The experience inspired him to aim for big things …
7 Sep 2020
Great frauds in history: the Butcher brothers' corrupt banking empire
People

Great frauds in history: the Butcher brothers' corrupt banking empire

Jacob and CH Butcher plundered their $3bn banking empire, leaving investors short of almost $400m.
2 Sep 2020

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020