MCI Faces RICO Claims

As MCI, the telecom giant formerly known as WorldCom, works to address
securities fraud charges filed against it last week by the Oklahoma Attorney
General, the company has been hit with a new fraud lawsuit by its
long-distance rival, AT&T.

AT&T on Tuesday said it filed a lawsuit in federal district court against
MCI/WorldCom and another telco, Onvoy, seeking damages for what it alleged were
violations of the federal Racketeering Influenced and Corrupt Organization
(RICO) Act and other laws by MCI and Onvoy.

MCI is already facing a litany of litigation and investigations since it
collapsed into bankruptcy in July of 2002 as the result of an accounting
scandal that has now been revealed to involve about $11 billion.

In its civil complaint, AT&T claims it suffered damages as
a result of an alleged “fraudulent call-routing scheme that is fundamentally
different from, and bears no relation to, legitimate routing practices
widely employed in the telecommunications industry.” AT&T said it filed its
charges as the result of a grand jury investigation.

AT&T and Verizon have complained to federal regulators that MCI allegedly
re-routed some of its long-distance calls through Canada, with the help of
Onvoy, they added, in order to avoid paying them inter-connect charges.
Federal prosecutors have been looking into the charges.

A spokesperson for MCI/WorldCom, Julie Moore, disputed the claims. “This
is nothing more than AT&T trying to make headlines from something that is at
best a commercial dispute that started weeks ago.”

The company’s own internal review of the matter, by the law firm Gibson,
Dunn & Crutcher LLP, has found nothing wrong in our dealings with Onvoy, MCI
said. And it said it would “continue to fully cooperate with the Department
of Justice and its ongoing investigation” into the re-routing claims.

Further, MCI has claimed that AT&T’s motives for making the allegations
are to delay and obstruct its reorganization in bankruptcy court.

The charges come just days after MCI/WorldCom was hit with felony
securities fraud charges by the Attorney General of Oklahoma last week, who charged MCI the company and six former company executives with intentionally misleading investors regarding the firm’s financial health before it
declared bankruptcy.

In a related development, Bernard Ebbers, the former chairman of
WorldCom, which is slated to rename itself MCI when it emerges from
bankruptcy, is planning to appear in Oklahoma Wednesday to answer securities fraud charges leveled against him by the state of Oklahoma.

Meanwhile, MCI presses on with its plans to put its past behind it. Late Friday,
the company named five new members to the company’s board of directors as
part of its housecleaning plans to put its scandals behind it.

The new members include W. Grant Gregory, a former chairman of Touche
Ross; Judith Haberkorn, a retired Bell Atlantic executive; Patton Boggs
Partner Laurence Harris; Eric Holder, a former U.S. Deputy Attorney
General; and David Matlin, the CEO of MatlinPatterson Global Advisers.

The new board members were named in keeping with recommendations in a new corporate governance report by
Richard C. Breeden, a former chairman of the Securities and Exchange
Commission. He was appointed by a federal court to produce recommendations
for cleaning up the telecom company’s problems that led to its bankruptcy,
considered among the largest in U.S. corporate history.

Included in Breeden’s report, entitled “Restoring Trust” is the selection of board members and how qualification, conflicts and independence standards
for the board members should be pursued.

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