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.
