FBI puts cuffs on former WorldCom chiefs

US officials continued their crackdown on corporate scandals yesterday with the arrest of two former WorldCom executives for their alleged part in the $3.85bn accounting fraud that tipped the company into bankruptcy.

The FBI took Scott Sullivan, the former chief financial officer, and David Myers, the one-time chief controller of WorldCom, into custody at 7am in New York. In what is becoming a familiar scene, the pair, dressed in dark suits, were later led away, handcuffed and flanked by FBI agents, in front of television cameras.

The arrests follow investigations into the executives' role in the accounting fraud disclosed by WorldCom in June.

Mr Sullivan and Mr Myers were charged with securities fraud, conspiracy and five counts of making false filings with the securities and exchange commission.

John Ashcroft, the US attorney general, said the government was winning the battle against corporate fraud. "With each arrest, indictment and prosecution we send this clear, unmistakable message. Corrupt corporate executives are no better than common thieves when they betray their employees and steal from their investors," he said. "Corporate executives who cheat investors, steal savings and squander pensions will meet the judgment they fear and the punishment they deserve."

The complaint alleges that Mr Sullivan directed Mr Myers to hide $3.85bn of operating costs by dispersing them throughout the company's capital expense account. They could face a maximum prison term of 65 years each and fines of more than $6m. Mr Sullivan's bail was set at $10m yesterday.

The revelation of a black hole in WorldCom's accounts forced the once high-flying telecoms firm to become the largest-ever bankruptcy, with assets listed of $107bn.

Mr Sullivan, who cashed in more than $45m in shares during his time at World Com, was fired and Mr Myers resigned after the announcement.

Larry Thompson, the deputy attorney general, said the pair had "systematically flouted the rules of accounting and outright lied to investors". The investigation is continuing.

The White House is eager to make examples of the executives behind the glut of financial frauds. Five men were arrested at the bankrupt cable television company Adelphia Communications last month. Sam Waksal, the former boss of drugs company ImClone, has been arrested for insider dealing and erstwhile Tyco chief Denis Kozlowski was indicted for tax evasion.

The scandals on Wall Street have begun to dent the popularity of President Bush whose approval rating has fallen below 70% for the first time since September 11. The Bush administration is seeking to reassert control ahead of mid-term elections in November and earlier this week the president signed a sweeping corporate reform bill, promising "no more easy money" just "hard time" for white collar criminals.

The bill includes a steep increase in the maximum prison time for corporate fraudsters to 20 years.

Investors were asking yesterday when the first arrests would be made in the Enron affair, involving the US energy firm that kicked off the steady stream of corporate malfeasance.

Mr Sullivan, 40, was a former accountant with KPMG and joined WorldCom as chief financial officer in 1994. He was a high-profile figure alongside former chief executive Bernie Ebbers in building WorldCom through an aggressive series of acquisitions including the $33bn takeover of MCI. Mr Sullivan has a wife and baby daughter.

WorldCom entered bankruptcy after missing a $79m payment to bondholders. Mr Ebbers, is also under investigation but has not yet been charged. He left the company in April, owing it more than $400m in loans he used to buy WorldCom shares.