Ms. Vinson and Mr. Normand were shocked by their bosses’ proposal and the huge sum involved. All three accountants were worried that the adjustment wasn’t proper, according to the people familiar with the conversation. Under accounting rules, reserves can be set up only if management expects a loss in the unit where the reserve is established, and there must be a good reason to reduce them. The transfer would violate those rules, the accountants believed, because there was no business reason for depleting the reserve account.
Ms. Vinson and Mr. Normand told their boss that the transfer wasn’t good accounting, according to a person close to Ms. Vinson. Mr. Yates replied that he wasn’t happy about it either. But he said that Mr. Myers had assured him that it would never happen again and that he had agreed to go along. Finally, so did Ms. Vinson and Mr. Normand. They made the transfer.
David Schertler, a lawyer who now represents Mr. Yates, says that his client was put in an “untenable” position by his bosses. “I think that Vinson, Normand and Yates are all low-level players in this who wound up being the victims of unscrupulous higher managers,” he says.
Afterward Ms. Vinson suffered pangs of guilt. On Oct. 26, the same day the company publicly reported its third-quarter results, she told Mr. Yates that she was planning to resign. Mr. Normand felt similarly, according to the person close to Ms. Vinson and others.
Word of the mutiny in the accounting department reached Mr. Ebbers. After a conference call with analysts, he approached Mr. Myers in a corridor and vowed that the accountants would never again be placed in such an uncomfortable position, says a former employee. Reid Weingarten, Mr. Ebbers’s lawyer, declined to comment for this story.
Several days later, Mr. Sullivan tried to talk Ms. Vinson and Mr. Normand out of resigning. The two accountants, who had met the CFO only a few times before, took seats on a sofa in his office’s large seating area. Mr. Myers and Mr. Sullivan sat in two chairs facing them, according to two people familiar with the meeting.
Mr. Sullivan explained that he was trying to fix the company’s financial problems. Think of it as an aircraft carrier, he said, according to the people familiar with the meeting. He continued, in their account: We have planes in the air. Let’s get the planes landed. Once they are landed, if you still want to leave, then leave. But not while the planes are in the air.
Ms. Vinson listened silently. Mr. Normand said that he was worried he would be held liable for making the accounting changes. But Mr. Sullivan assured him that nothing they had done was illegal and that he would assume all responsibility, according to two people familiar with the meeting. He noted that the company had just cut by half its projections for the fourth quarter, and that the accounting switch wouldn’t be repeated. Mr. Sullivan’s attorney, Roy Black, declined to comment for this story.