Ring of Thieves

Ring of Thieves - Forbes (June 10, 2002) Aggressive...

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Forbes (June 10, 2002) Aggressive Accounting Ring of Thieves Neil Weinberg, 06.10.02 MCI introduced Walter Pavlo to a world of armed thugs, duffel bags stuffed with cash and phony accounting. Now, sitting in a South Carolina prison, he points a finger back at his former employer. Walter Pavlo has plenty of time these days to walk the track inside South Carolina's secluded Edgefield prison. He takes a daily stroll with Mark Whitacre, the Archer Daniels Midland whistle-blower who is serving a ten-and-a-half-year sentence for fraud. Surrounded by drug convicts, camp fences and rolling woodlands, they chat about their pasts and draw parallels to the scandals swirling around big corporations now--at Enron, at Arthur Andersen, in telecom. Pavlo, blond and still boyish at 39, committed his crimes at MCI as the telecom business roared in the mid-1990s. He is in the 15th month of a 41-month sentence for obstruction of justice, money laundering and mail fraud. An unremarkable rank-and-filer in a 25-person billing department, he says he cooked the books, under pressure from higher-ups, to help bolster MCI's growth. Pavlo employed an array of tricks--taught to him, he says, at MCI--to hide hundreds of millions of dollars in aging bad debts and clearly uncollectable receivables owed by a raft of upstart telecom resellers. In the process, he used the same sleight of hand to skim $6 million on the sly for himself and a couple of partners; for that he is doing soft time. The resellers stoked growth at a time when MCI, lit up by the halo of the Internet frenzy, was prettying itself up for a sale to someone bolder. The company, with Walter Pavlo's copious assistance, granted easy credit to dozens of fly-by-nights looking to lease its lines and resell service to businesses and consumers. It blithely let just about anyone, from raw rookies to pornographers and astrological touts, run up tens of millions of dollars in bills. Then, Pavlo says, MCI kept the receivables on its books long after any real hope of collecting had vanished--with the resellers themselves, in some cases. Banks, eager for high interest and fees, financed it all. It was his job, he says, to hold these losses to a minimum, even if doing so required deceptive means. His actions benefited MCI. The company filed a proxy with the Securities & Exchange Commission recommending a $20 billion buyout by British Telecom in 1997, just days after management knew it had fraud on its hands, according to a brief filed by a group of banks that sued MCI in 1997. That deal collapsed, and MCI then accepted a $41 billion offer from WorldCom months later. MCI denied the banks' allegations and has claimed it was duped by its own employees. At MCI only Pavlo and James B. Wilkie, a senior manager, have been punished (along with a third partner, an outsider named Harold R. B. Mann). For five years Pavlo has wondered when someone might take a hard look at the four levels above him, from his boss up to the chief financial officer--Douglas Maine,
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Ring of Thieves - Forbes (June 10, 2002) Aggressive...

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