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Judge blasts CEO's Pay Rate

Says WorldCom Compensation Raises Doubts About Reform

Dec 11, 2002 | Jackson Clarion Ledger

A federal judge on Tuesday blasted WorldCom's proposed pay scale for its new leader and threatened the Clinton-based telecommunications giant with $9 billion in fines.

Jed S. Rakoff, the U.S. District Court judge for the Southern District of New York who is handling the Security and Exchange Commission's civil fraud suit against WorldCom, said in a filing Tuesday that the pay package "raises serious concerns as to whether (CEO Michael Capellas) is as committed to reform as the nature of this case requires."

In his filing, Rakoff did not single out any specific portion of Capellas' salary package, which calls for $1.5 million per year in salary and a $2 million signing bonus. He instead took issue with WorldCom's decision to call for a Dec. 16 hearing on the matter in Bankruptcy Court.

As part of a settlement agreement reached between WorldCom and the SEC last month, the company agreed to give Rakoff and a court monitor he appointed the final right to approve or reject Capellas' salary deal.

"Several material terms of the proposed compensation package have previously been rejected by the corporate monitor as grossly excessive or otherwise deficient," Rakoff said in his filing.

WorldCom has agreed not to argue its innocence if the government chooses to fine it. At such a hearing, the company could only argue about the size or appropriateness of the fines.

In his filing Tuesday, Rakoff said the fines could reach $9 billion — the amount by which WorldCom inflated its earnings during the past three years.

Rakoff said he will not delay the Dec. 16 Bankruptcy Court hearing, but he ordered WorldCom to continue discussions with the court monitor to "try to resolve what appears to be his very serious objections to the proposed compensation package."

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