## Facts

- Bernard J. Ebbers was the CEO of WorldCom, a telecommunications company whose largest expense was “line costs” paid to other carriers.
- After a market downturn, WorldCom’s operating performance deteriorated and its ability to meet market expectations weakened.
- Ebbers had substantial personal loans secured by WorldCom stock, exposing him to margin calls if the stock price fell.
- The government presented evidence that Ebbers and CFO Scott Sullivan orchestrated a scheme to conceal declining performance by falsifying financial reports.
- A central method was reclassifying large amounts of line-cost operating expenses as capital expenditures across multiple quarters, inflating reported earnings.
- WorldCom’s public disclosures allegedly failed to inform investors about the accounting treatment and the company’s true financial condition.
- Internal and regulatory scrutiny ultimately revealed the accounting fraud; WorldCom issued major restatements, Ebbers resigned, and the company later entered bankruptcy.
- A jury in the Southern District of New York convicted Ebbers on nine counts, including conspiracy, securities fraud, and filing false SEC reports, and the court sentenced him to 25 years’ imprisonment plus supervised release.

## Issues

1. Whether the district court violated fairness or due process by allowing the government to use immunized witnesses while refusing to compel immunity for defense witnesses who invoked the Fifth Amendment.
2. Whether the evidence supported giving a conscious-avoidance (willful-blindness) instruction without permitting conviction based on negligence rather than knowledge and intent.
3. Whether securities-fraud convictions required the government to plead and prove specific violations of Generally Accepted Accounting Principles (GAAP).
4. Whether the 25-year sentence was unreasonable, including whether the loss calculation was erroneous and whether disparities with co-conspirators rendered the sentence improper.

## Decision

- The Second Circuit affirmed the convictions and the 25-year sentence.
- The court held that compelled defense-witness immunity is available only in extraordinary circumstances and was not warranted because there was no showing the government deliberately distorted the fact-finding process.
- The court upheld the conscious-avoidance instruction because Ebbers denied knowledge and the evidence supported a finding that he was aware of a high probability of fraud and deliberately avoided confirming it; the charge still required intent to defraud.
- The court rejected the argument that GAAP violations are elements of securities fraud; the statutes require materially false or misleading statements or omissions made with scienter.
- The court sustained the district court’s loss estimate and concluded the sentence was reasonable under post-Booker review, notwithstanding differences between Ebbers’s sentence and those of cooperating co-conspirators.

## Legal Principles

- A court may compel use immunity for defense witnesses only in extraordinary circumstances, generally requiring proof the government intentionally sought to distort the truth-seeking process; immunization decisions are ordinarily within the Executive Branch’s discretion.
- A conscious-avoidance instruction is proper when the defendant claims lack of knowledge and the evidence permits finding the defendant recognized a high probability of the disputed fact and deliberately avoided confirmation; it cannot substitute for proof of intent or reduce the government’s burden.
- Securities fraud does not require pleading or proving technical GAAP violations; liability turns on materially false or misleading statements or omissions made with scienter.
- Post-Booker, federal sentences are reviewed for reasonableness; district courts may make reasonable loss estimates supported by the record, and disparities with co-defendants may be justified by cooperation, culpability differences, and other sentencing factors.

## Conclusion

The Second Circuit upheld Ebbers’s WorldCom fraud convictions and 25-year sentence, ruling that compelled defense immunity was unwarranted absent governmental distortion, the conscious-avoidance charge was supported by the evidence, GAAP violations were not required elements of securities fraud, and the loss-driven sentence was reasonable under advisory Guidelines review.


United States v. Ebbers, 458 F.3d 110 (2d Cir. 2006)