WorldCom and the Securities and Exchange Commission reached a partial settlement Tuesday to civil fraud charges stemming from the Clinton-based telecommunications giant’s $9 billion accounting scandal.
“This shows the company has made laudable progress in moving toward a much more positive position and the correction of past mistakes,” U.S. District Judge Jed Rakoff said in a hearing, according to the Reuters news agency.
Although the settlement calls for further monitoring of the company, the restructuring of its accounting department and ethics training for WorldCom officials, the SEC has not yet fined the company â€” a decision that drew immediate criticism.
“It is inconceivable that a company could conduct itself in such a manner and not be fined,” said Tom Schatz, president of the watchdog group Citizens Against Government Waste.
“Through the criminal actions of WorldCom executives, thousands of investors lost millions of dollars and thousands of employees were laid off. Now, the SEC might only provide the company with a slap on the wrist.”
John Sidgmore, WorldCom’s president and chief executive officer, who will be replaced next month by Michael Capellas, said, “Resolution of this litigation enables our company to move even more confidently toward a successful conclusion of the company’s financial restructuring.”
Under the settlement, WorldCom agreed to:
Not violate securities laws in the future.
Provide training to its senior officers and financial reporting personnel for at least the next three years.
Retain a consultant to review the effectiveness of WorldCom’s internal accounting policies.
Allow corporate monitor Richard Breeden to continue his review of WorldCom’s corporate governance and ethics policies.
Sidgmore said WorldCom has already begun many of those reforms. Jacob Frenkel, a former senior counsel with the SEC’s enforcement division and former federal prosecutor now with the Atlanta law firm of Smith, Gambrell & Russell, said the settlement is the SEC’s first chance to show what it wants from corporate wrongdoers.
Since the June fraud announcements, restoring the company’s credibility has been the biggest task facing WorldCom officials. Because of that, Frenkel said, WorldCom would have gone along with almost any settlement.
“The SEC could have told them to make the back door the front door and the front door the back door, and all WorldCom would have asked would be, ‘How big do you want the opening?’ ” Frenkel said.
While some may complain that the lack of fines means WorldCom is getting off too easily, the settlement creates a close, long-term relationship between the SEC and the company.
In addition to Breeden’s monitoring, WorldCom will have to consult with the SEC to design education programs. Also, the SEC will review reports issued by the consultants examining WorldCom’s corporate practices.
The commission also left the door open to fines at a later date. If either Rakoff or the SEC decides fines are necessary, one of them will order a hearing.
Although the company has not admitted any wrongdoing, as part of the settlement, WorldCom will not be able to argue its innocence in a fine hearing. The only issues will be the size and appropriateness of the fine.