Lying, cheating cowboy and empire built on paper

ONE man is responsible for the disaster that is consuming the world's markets and his name is Bernard Ebbers. He is the founder of WorldCom, the stricken communications giant whose imminent collapse has sparked a global economic crisis.

Ebbers built his empire by sleight of financial hand, in the name of Jesus - he's a born-again Christian - and with the assistance of Andersen, the discredited firm of accountants behind the collapse of energy giant Enron (and the firm which helped Chancellor Gordon Brown prepare his first Budget).

When Ebbers was forced to resign seven weeks ago, because of grave irregularities in the accounts certified by Andersen, the scene was set for the crash that on Wednesday saw the value of companies on the London Stock Exchange plummet by £1bn a minute in the first 40 minutes of trading.

Falling fastest across the Atlantic was WorldCom, the company so favoured by widows and small savers. They had placed their faith in Ebbers, a committed family man who gives lectures at his local church in Mississippi on the merits of family life and values. Yet he has betrayed them in spectacular fashion. At their peak, shares in WorldCom were worth $64 (£46) each. Yesterday they were suspended at a pitiful 20 cents (14p).

Just a few days ago, out in the cold and facing the prospect of a full-scale criminal investigation for his part in what is being billed as the largest case of accounting fraud in history, 60-year-old Ebbers declared: 'I feel like crying.'

How could it have come to this? Ebbers has a deep religious faith, he teaches at his local Sunday school, takes time off to serve meals to the homeless at Frank's Famous Biscuits in the slums of Jackson, Mississippi, and has made it a point of principle to eschew many of the outward trappings of wealth.

A strong advocate of marriage, the bearded 6ft 4in former bouncer and basketball player lives quietly with his wife Kristie in a modest lakeside home, an hour's drive from his ramshackle office in the small town of Clinton, Mississippi. He would arrive for work there chomping a well-chewed cigar and dressed in cowboy boots, jeans and an open-neck shirt, turquoise jewellery jangling from neck and wrist.

His attitude towards his own company was equally off-hand. He ruled over one of the world's most powerful telecommunications empires, yet steadfastly refused to use a mobile phone or pager. He had never sent an e-mail until 1999.

Buccaneering appraoch

HE ADMITTED: 'I don't understand a lot of what goes on in this industry.' He made no apology for that yawning chasm of ignorance, explaining that his near total lack of technical know-how enabled him to take a fresh view of every business opportunity. It was a buccaneering approach that for 15 years produced spectacular results. At one point WorldCom was worth £120bn - more than McDonald's, Boeing and Gillette combined. That in turn made Ebbers a billionaire.

Not bad going, as he is fond of pointing out, for someone born into the working classes whose first job in Edmonton, Canada, was as a milkman. He didn't last long on the dairy float. As he explained, 'Delivering milk day to day in 30-below-zero weather isn't a real interesting thing to do for the rest of your life.'

Nor did using his powerful frame to throw people out of a local nightclub. Instead, he enrolled on a basketball scholarship at Mississippi College, a Southern Baptist school in Clinton. His scholastic achievements were mediocre (a degree in physical education) but Ebbers would claim that he left with something of much greater value than an education - 'a fuller understanding of what my purpose was in life, what a personal relationship with Jesus Christ really meant'.

Ebbers would claim it was his faith that gave him the inspiration to succeed. It took him a while to get going. After college, he got by teaching basketball and, sometimes, science. He moved on to become a manager at a clothing warehouse.

In 1974, he borrowed money from friends and bought a motel in the redneck backwaters of Mississippi. He built up a chain of nine. It was not until 1983, though, that Bernie Ebbers made his move into the big time. Over a fast food supper at the local diner, he agreed to invest in a business venture put together by three friends. America's telephone network was being opened to competition and their aim was to buy long distance lines at wholesale prices, then sell them on to local businesses. The waitress came up with the name for their company: Long Distance Discount Service. 'The only experience Bernie had operating a long-distance carrier is that he used the phone,' one of his early partners recalled.

Single-minded belief

EBBERS agreed. 'I didn't know what telecommunications was,' he said. 'I just knew the business plan showed good cash flow.' However, there was more to Ebbers than his godfearing, reclusive image might suggest. As John Sidgmore, who replaced Ebbers at the helm of WorldCom in April, observed: 'Don't fall for that 'Aw, shucks' stuff. Bernie is extremely street-smart.'

Ebbers' lack of knowledge about his business proved no handicap. What he was good at was doing deals and cutting costs, and his faith gave him a single-minded belief in his own ability (critics say he regarded it as God-given).

In 1988, Long Distance Discount Service (LDDS) began buying out its rivals, starting with the company that serviced most of Mississippi and a good part of neighbouring Tennessee. Within four years, it had become the fourth largest long-distance provider in the US. When it bought IDB WorldCom in 1994, it became one of the world telecoms leaders.

Everywhere Ebbers went, workforces were slashed, company cars repossessed, executives on out-of-town trips told to share rooms in cheap motels - and profits soared. His greatest moment came in 1998, when he snatched MCI Communications from under the noses of British Telecom.

BT executives thought they had a $22bn (£16bn) deal to merge with MCI, America's number two long distance provider. Before BT's then chairman Sir Iain Vallance could get pen to paper, Ebbers had gazumped him by $7bn. It was a coup of breathtaking magnitude.

'Bernie Ebbers was an icon, the darling of Wall Street,' says Lars-Christian Brask, owner of London-based investment bank Brask & Co. 'He was the visionary of the communications industry. WorldCom was going to conquer the world. The top fund managers all wanted to meet him. They were eager to invest in the company.'

Ebbers himself was just as keen. So enthused was he by his own ability that he started buying ever more stock in WorldCom. Although he acquired a £40m 164,000-acre ranch in Canada and a 60ft yacht, appropriately named Aquasition, most of his wealth was tied up in the company. That, as it transpired, proved to be a fatal mistake. For himself - and for the world economy.

The MCI deal had exposed the flaw in Ebbers' modus operandi. When he sought to buy BT's 20% stake in MCI, he offered shares in WorldCom. Vallance was having none of it. He wanted cash. That sent Ebbers into a rage. He has never taken kindly to anyone with the temerity to challenge his belief in his own judgment. He warned that Vallance was in breach of his fiduciary duty. WorldCom shares, he insisted, were certain to soar and Vallance would be fired for incompetence when they did. Oxford-educated Vallance stood his ground - and BT walked away with a £2.25bn cash profit. Vallance was right to turn down Ebbers's paper offer, because that is exactly what it was: paper.

Hard cash had rarely figured in Ebbers's 60-plus takeovers. Instead, his victims were fobbed off with WorldCom shares.

Robbing Peter to pay Paul

THAT was fine as long as the market kept rising. But it didn't. When the whole telecoms industry ran into trouble two years ago, the shares tumbled. Ebbers ran into grievous problems. He had kept on buying shares in his company, often on margin - the system which allows investors to buy now and pay later. That is fine if the price goes up, but disastrous if it goes down.

WorldCom's went down and when Ebbers was asked to pay, instead of selling assets, he borrowed to meet his debts. His biggest creditor, it turned out, was WorldCom itself. According to the published figures, he borrowed $366m from his own company to buy shares in his own company - at a mere 2.15% interest.

In other words, Ebbers was robbing Peter to pay Paul - at the very moment the value of the shares was plummeting. Of the loans, Ebbers piously insisted: 'I have a 10,000% clear conscience.'

He argued that he had no choice, that he was doing it for the good of the small investor, that if he sold a large block of shares, he would accelerate the fall in price. He insisted it was the WorldCom board that authorised the loans in an effort to support the share price: 'The board said, 'Wait a minute. We don't expect our shareholders to be penalised because you got a margin call.' And so the board stepped into the gap.'

It was an argument built on a shoddy foundation of paper that was worth less and less with every passing day. When the Securities and Exchange Commission, which regulates business in America, opened an investigation into the loans, Ebbers had no alternative but to resign. He finally quit on 30 April, but only after securing himself a £1m-a-year pension for life.

That was far from the end of WorldCom's problems, however. Ebber's sidekick during the acquisition frenzy of the Eighties and Nineties was the company's chief financial officer Scott Sullivan. It was Sullivan who put the paper bids together and played a vital role in persuading Wall Street to back them.

'He has no peer in his ability to earn the trust and confidence of the investment community,' Ebbers said of his lieutenant. Ebbers trust was misplaced - and that is putting the best interpretation on their association. At worst the two men may be party to what the SEC calls 'accounting improprieties of unprecedented magnitude'. For it has now been revealed that over £2bn of WorldCom's money has disappeared into a black hole called 'expenses'.

John Sidgmore, who replaced Ebbers at the helm of the stricken company, said: 'Our senior management team is shocked by these discoveries.' So too are the world's stock markets. Wednesday was one of the blackest days in recent financial history, taking a sledgehammer to the confidence of investors already badly shaken by the Enron scandal.

The alleged fraud is on a scale so immense, so amoral, it almost defies belief. And at the heart of the catastrophe stands Bernard Ebbers, who found God - and lost millions of small investors their life savings.