Lead Plaintiff's Memorandum of Law in Opposition to Defendants'

mistake.” Id. On July 8, 2002, Ebbers and Sullivan were summoned to testify before the House
Committee on Financial Services where, in front of the nation, they refused to offer any explanation for
what had occurred at WorldCom, instead invoking their Fifth Amendment rights against selfincrimination.
7, 106. Two weeks later, WorldCom filed the biggest bankruptcy in history. 6.
As was subsequently disclosed, the fraud began long before the third quarter of 2000. In fact,
internal WorldCom e-mails show that WorldCom senior management was cooking the books by
improperly recording line cost expenses by no later than the first quarter of 2000. 96. Moreover,
while the final restatement has not been announced, the Company has since admitted that its earnings
for 1999 were materially overstated by hundreds of millions of dollars, and that as a result the
Company will be required to restate its results for 1999 in addition to those for 2000, 2001 and the first
quarter of 2002.
Sullivan was indicted in this District for securities fraud and related charges on August 28,
2002. 8. Four other senior WorldCom employees have pled guilty to multiple felonies, including
securities fraud and conspiracy to commit securities fraud. In pleading guilty, each of these employees
admitted that the fraud had been committed at the behest of WorldCom’s senior management. Id.
The Fraud Occurred Because of a Corporate Culture That
Condoned Fraud, and Because the Gatekeepers Were Complicit
A fraud this large and this brazen does not happen overnight, and it does not occur in a vacuum.
Rather, it occurred because WorldCom’s corporate culture condoned subterfuge and because the
gatekeepers -- the auditors, the Board, and the underwriters -- were either complicit or asleep at the
switch. As The Washington Post reported following an extensive investigation of the fraud, there was
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