WorldCom and federal regulators Tuesday reached a partial settlement of civil fraud charges that calls for government oversight of the embattled telecom giant and an unspecified fine.
The settlement, stemming from WorldCom’s $9 billion accounting scandal, calls for the continuation of a court-appointed monitor for the telecom.
The No. 2 long-distance provider, which filed for bankruptcy protection, agreed to hire an outside consultant to review its internal auditing controls.
The accord with the Securities and Exchange Commission also includes a permanent injunction barring WorldCom from further violations of securities laws and a fine to be determined later. The fine could be several million dollars, sources close to the SEC say.
Under the deal, WorldCom did not admit or deny wrongdoing.
The agreement, in the works for weeks, marks a key legal hurdle for WorldCom and could hasten its emergence from bankruptcy court. It also should give the company’s CEO, Michael Capellas, a clean break from the company’s muddled past.
”It removes a black cloud hanging over the company,” says securities-law expert Tom Ajamie. ”It’s one less item for investors and bankers to be nervous about.”
However, the deal does not preclude unearthing further evidence of fraud at Worldcom. It also faces shareholder lawsuits and probes by Congress. The Justice Department, which has brought charges against several former employees, continues its inquiry.
”WorldCom has made peace with the government. It is on corporate financial probation,” says corporate criminal attorney David Howard. ”The probation officer’s role is to keep WorldCom on the straight and narrow.”
WorldCom’s outgoing CEO, John Sidgmore, said the settlement is a ”significant milestone in WorldCom’s restructuring efforts. Resolution of this litigation enables our company to move even more confidently toward a successful conclusion of the company’s financial restructuring.”
WorldCom, whose MCI unit has 20 million customers, filed the largest bankruptcy in U.S. corporate history in July.
The SEC in June charged WorldCom with fraud for misleading investors by misstating and hiding expenses. WorldCom has admitted to at least $9 billion in erroneous accounting that has plunged it into bankruptcy court.
Four WorldCom executives have pleaded guilty to their roles in the scandal and are cooperating with prosecutors in exchange for possible leniency.
Former WorldCom chief financial officer Scott Sullivan has pleaded innocent after being indicted in the scandal.