Federal Judge OKs Partial WorldCom Settlement
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A federal judge has approved a partial settlement of fraud charges against WorldCom by the U.S. Securities and Exchange Commission (SEC), under which the troubled telco will pay an unspecified fine and submit to government oversight.
That fine -- which will be determined next year -- reportedly may be in the hundreds of millions of dollars, or could amount to nothing at all, depending on U.S. District Judge Mark Rakoff's judgement as to whether the company has managed to reform itself.
The settlement approved Tuesday in New York includes a permanent injunction against further violation of securities laws, and stipulates a court-appointed monitor for the company. Under the settlement, the telco will hire an outside consultant to go over its accounting controls, and its employees will be subject to mandatory accounting and ethics training for at least three years.
Citizens Against Government Waste (CAGW), a Washington, D.C.-based watchdog group, was angered by the ruling, noting that both Enron and Arthur Andersen received fines for the same corporate behavior as WorldCom.
"Essentially what you have is a company that committed the largest bankruptcy in history and got away with a slap on the wrist," said Tom Shatz, president of CAGW. "In fact, they didn't even pay the legal fees of the SEC."
"Through the criminal actions of WorldCom executives, thousands of investors lost millions of dollars and thousands of employees were laid off," he said.
He added, "A lot of people who lost a lot of money investing in WorldCom are going to be looking at this and say, 'you've got to be kidding.'"
In June, the SEC filed charges against WorldCom and its executives alleging the firm had cooked the books to meet Wall Street expectations and goose its stock price. The SEC said at the time that the fraud pumped up WorldCom's earnings by $3 billion in 2001 and $797 million in the first quarter of 2002.
The SEC's fraud charges, filed in a civil suit in a Manhattan federal court, came just a day after WorldCom's bombshell admission that it had overstated its cash flow by $3.8 billion over five quarters. The SEC had already begun an investigation into Clinton, Miss., company's accounting in February.
WorldCom followed up by filing for Chapter 11 bankruptcy protection in July, making it the largest bankruptcy reorganization in U.S. history. The SEC expanded its investigation earlier this month when WorldCom warned it would restate $9 billion in revenue.
Two WorldCom officials, former controller David Myers and former CFO Scott Sullivan, are facing federal criminal charges of falsifying the company's balance sheets in order to allegedly hide $3.8 billion in expenses. Myers has pleaded guilty to securities fraud charges. Two other former WorldCom officials have also pleaded guilty to fraud and conspiracy charges related to attempts to cover up about $7 billion in expenses. The Justice Department's criminal investigation of WorldCom is also ongoing.