WorldCom Settles Accounting ScandalNov 27, 2002 | AP WorldCom and the government have settled a civil lawsuit over the company's $9 billion accounting scandal, leaving a judge to decide how much the bankrupt telecommunications giant will pay in fines.
The settlement with the Securities and Exchange Commission also calls for WorldCom executives to submit to ethics training and expands the duties of WorldCom's court-appointed watchdog.
U.S. District Judge Jed Rakoff approved the settlement Tuesday, calling it "a model perhaps of what should be attempted" in cases of large-scale corporate fraud.
"The company has made laudable progress in moving toward a much more positive position and a correction of past mistakes," he said.
The SEC declined to say how large a fine it planned to seek against the company, and Rakoff is not expected to rule on the matter until next year. WorldCom lawyers said they hope the judge would issue no fine at all.
Mississippi-based WorldCom, whose MCI unit is the No. 2 U.S. long-distance company with 20 million customers, filed the largest bankruptcy in U.S. corporate history in July. It was the biggest in a series of scandals that rattled the economy and the stock market.
The SEC has charged WorldCom with fraud for misleading investors by misstating and hiding expenses. WorldCom has admitted to at least $9 billion in erroneous accounting.
The settlement, which stems from civil charges against the company, requires all WorldCom employees responsible for accounting, including new CEO Michael Capellas, to attend training seminars in business ethics for at least three years.
WorldCom will also be subject to extensive review by a court-appointed watchdog, former SEC chairman Richard Breeden, and must hire a consultant within a month to carry out a separate review of internal accounting controls.
As part of the deal, WorldCom also agreed to a permanent injunction barring them from violating the securities laws.
"The company has stated that it's committed to changing its ways and we certainly hope that it does," SEC lawyer Peter Bresnan said.
Discussing a fine, Rakoff said he had received many letters from company investors detailing their financial losses from the company's bankruptcy. But he also said he would consider WorldCom's reform efforts.
After the hearing, court-appointed monitor Richard Breeden called the settlement "a big step forward for this company and a positive outcome for the SEC as well." Breeden also said he expected the resignations of seven WorldCom board members who were at the company during the accounting fraud.
Four WorldCom executives have pleaded guilty to their roles in the accounting misstatements that plunged the company into bankruptcy, and Rakoff has already approved a settlement with two of those executives.