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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933
Release No. 8402 / March 17, 2004

SECURITIES EXCHANGE ACT OF 1934
Release No. 49431 / March 17, 2004

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1977 / March 17, 2004

ADMINISTRATIVE PROCEEDING
File No. 3-11435


In the Matter of

SCOTT D. SULLIVAN,

Respondent.


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ORDER INSTITUTING ADMINISTRATIVE
PROCEEDINGS PURSUANT TO RULE
102(e) OF THE COMMISSION'S RULES OF
PRACTICE, MAKING FINDINGS, AND
IMPOSING REMEDIAL SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Scott D. Sullivan ("Sullivan") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.1

II.

In anticipation of the institution of these proceedings, Sullivan has submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.3. below, which are admitted, Sullivan consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.

III.

On the basis of this Order and Sullivan's Offer, the Commission finds that:

  1. Sullivan, age 42, was a certified public accountant licensed to practice in the State of New York from 1985 until 1989, when his registration lapsed. Sullivan served as the Chief Financial Officer, Treasurer and Secretary of WorldCom, Inc. ("WorldCom") from 1994 to mid-2002. He also served as a Director for WorldCom from 1996 to mid-2002. In June 2002, WorldCom terminated Sullivan.

  2. WorldCom was at all relevant times a Georgia corporation with principal offices in Clinton, Mississippi. It provided a broad range of communications services to both U.S. and non-U.S. based businesses and consumers. At all relevant times, WorldCom's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the Nasdaq National Market System. WorldCom's fiscal year ended December 31.

  3. On March 8, 2004, a judgment was entered against Sullivan, by consent, permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, in a civil action in the United States District Court for the Southern District of New York, entitled Securities and Exchange Commission v. Scott D. Sullivan, Civil Action Number 04 CV 1706. Sullivan was also barred from serving as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act. The determination of the amount of civil penalties, if any, and/or disgorgement, if any, to be paid by Sullivan in that civil action will be made at a later date.2

  4. The Commission's complaint alleged, among other things, the following: Starting at least as early as the third quarter of 2000, Sullivan and other senior WorldCom executives knew, or were reckless in not knowing, that WorldCom could not realistically achieve its publicized revenue and earnings goals. Sullivan and other senior executives and managers at WorldCom engaged in a course of conduct that caused WorldCom to, among other things, fraudulently report revenue and earnings for the third quarter of 2000 through the first quarter of 2002. In furtherance of this scheme, Sullivan and other senior executives and managers at WorldCom caused WorldCom to improperly disguise WorldCom's true operating revenue during 2000, 2001 and the first quarter of 2002. In addition, they caused WorldCom to reduce its operating expenses in at least two fraudulent ways. First, with the knowledge and consent of other senior WorldCom executives, Sullivan instructed subordinates to improperly release certain reserves against operating expenses. Second, again with the knowledge and consent of senior WorldCom executives, Sullivan directed these subordinates to improperly transfer certain operating costs to WorldCom's capital asset accounts. None of these practices were disclosed to investors, even though they artificially and materially inflated the revenues and income WorldCom reported to the public on its financial statements from the third quarter of 2000 through the first quarter of 2002. In fact, as Sullivan and others knew, beginning at least in the third quarter of 2000, WorldCom failed to meet revenue, income and earnings-per-share targets and was able to appear successful only because of the scheme to defraud.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Sullivan's Offer.

Accordingly, it is hereby ORDERED, effective immediately, that Sullivan is suspended from appearing or practicing before the Commission as an accountant.

By the Commission.

Jonathan G. Katz
Secretary

Endnotes

 

http://www.sec.gov/litigation/admin/33-49431.htm


Modified: 03/17/2004