A criminal prosecution by Oklahoma’s attorney general shouldn’t prevent the former WorldCom from surviving bankruptcy but could prolong the fallout from the company’s massive accounting fraud.
Drew Edmondson introduced the latest wrinkle into the phone company’s ongoing saga Wednesday when he filed 15 felony charges against it and six former executives, including Chief Executive Officer Bernard Ebbers and Chief Financial Officer Scott Sullivan.
Echoing critics’ complaints, Edmondson said the Securities and Exchange Commission’s $750 million settlement with WorldCom, which changed its name to MCI after filing for bankruptcy, was “totally inadequate.” He also said he was not confident federal charges against the former executives would send them to prison for life.
“It looks like WorldCom is being patted on the back and rewarded,” he said in a conference call with reporters.
MCI said it would cooperate with Edmondson but doesn’t expect the charges to interfere with its bankruptcy confirmation hearing that begins Sept. 8.
“Today’s action against the company would only punish our 20 million customers and 55,000 employees, 2,000 of which work in Oklahoma,” Stasia Kelly, MCI’s general counsel, said in a statement.
Edmondson said four other states were considering criminal charges. However, three of them California, Indiana and Oregon said they weren’t doing so. West Virginia officials didn’t return calls.
Texas was considering civil charges, Edmondson said. A spokesman for Texas Attorney General Greg Abbott didn’t return calls.
Legal experts said criminal investigations such as Oklahoma’s typically shouldn’t affect bankruptcy proceedings.
“Criminal fines are seldom large enough to do any real damage to a company this size,” said Lynn LoPucki, a professor at the University of California at Los Angeles Law School.
Edmondson said his prosecution wasn’t meant to derail MCI’s post-bankruptcy plans. The 15 charges each carry a maximum fine of $10,000 and a maximum prison sentence of 10 years.
“This action is not intended to put WorldCom out of business, and I don’t think it will have that result,” he said.
The state’s pension funds lost $64 million by investing in WorldCom on the basis of its false statements, Edmondson said. The damage to individual investors is probably greater.
He said he would not pursue the charges if “we were satisfied that Sullivan was going to prison for life.”
The U.S. attorney’s office for southern New York is handling the prosecution of Sullivan and other executives. Sullivan has pleaded not guilty to securities fraud and other charges. Ebbers hasn’t been charged by federal prosecutors and previously has said he was unaware of accounting improprieties.
Oklahoma political observers said they were surprised to see Edmondson step into the breach on a big national case.
“He has not been controversial by and large,” said Neva Hill, publisher of The Hill Report, an Oklahoma City political newsletter. “It certainly has kind of taken some people aback.”
Edmondson did play a high-profile role in state lawsuits against the tobacco industry that resulted in multibillion-dollar settlements. He is a former president of the National Association of Attorneys General.
The 56-year-old Democrat has wide appeal in Oklahoma, and he is expected to run for governor or the U.S. Senate some day, Hill said.
Edmondson said his decision to bring the case wasn’t influenced by SBC Communications Inc., the local-phone company in Oklahoma and an MCI rival.
“I can confirm that Bell (SBC) was a supporter in the last campaign,” he said. “But I have put supporters in prison before.”
SBC has lobbied for more severe penalties against MCI and recently brought fresh fraud charges against the company, along with AT&T and Verizon Communications.
“We have no comment today on the attorney general’s action today to protect Oklahomans,” said Kevin Belgrade, an SBC spokesman.
Need Legal Help?
New York City, Long Island, New Jersey, and Florida
Our personal injury attorneys NY are here to help you when you need it the most.