Forbes (June 10, 2002)
Ring of Thieves
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
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,