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MCI Hit With 1st Criminal Charges

Aug 28, 2003 | USA TODAY

Oklahoma on Wednesday filed the first criminal charges against MCI and former CEO Bernie Ebbers but they might not be the last, state Attorney General Drew Edmondson says.

"We're aware of maybe half a dozen states that are looking at either civil or criminal filings," Edmondson said in a conference call. But at least two of the states he mentioned, Oregon and California, later said they were not considering criminal charges at this time.

Edmondson says Oklahoma pensions lost $64 million from the collapse of MCI, formerly WorldCom, because of its $11 billion accounting fraud the largest ever. He says federal penalties, including a $750 million fine, are "inadequate."

Oklahoma's filing reveals no evidence beyond what federal prosecutors and MCI have already released. Although accounting firm Arthur Andersen was convicted of obstruction of justice last year, companies usually escape federal criminal charges if they cooperate.

MCI, the nation's No. 2 long-distance carrier, says Oklahoma's charges won't derail its exit from Chapter 11 this fall and will "only punish" MCI's 20 million customers and 55,000 employees. MCI says it will cooperate.

But the charges might hurt MCI with customers: The company could "be seen as having too much baggage," says Danny Briere, CEO of consulting firm TeleChoice. The charges also could create friction with federal officials, much as New York Attorney General Eliot Spitzer rankled some with his probe of Wall Street firms.

The U.S. Attorney's Office in Manhattan said Wednesday that "competing interests can impede and delay" justice.

The Securities and Exchange Commission, which settled fraud charges against MCI, says it is "disappointed" Edmondson didn't give it a heads up. MCI says it wasn't notified, either, which is rare.

Oklahoma accuses MCI, Ebbers and five other former MCI employees of committing 15 counts of securities fraud by hiding expenses, which inflated earnings and MCI shares.

Each count carries as much as 10 years in prison and a $10,000 fine. MCI might have to pay restitution, Edmondson says.

The five employees, excluding Ebbers, already face federal fraud charges.

Four pleaded guilty. Former CFO Scott Sullivan awaits trial.

Ebbers' attorney, Reid Weingarten, says he expects Ebbers to "be fully exonerated."

David Schertler, attorney for defendant Buford Yates, calls the charges "nonsensical," because Yates pleaded guilty and is cooperating with the federal probe.

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