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WorldCom near deal to avoid charges, fines
By DAVID E. ROVELLA
Bloomberg Business News
NEW YORK -- WorldCom is near a settlement with the Securities and Exchange Commission that may let it avoid fines and criminal charges as regulators seek to help the second-largest U.S. long-distance company emerge from bankruptcy, people familiar with the matter said.
WorldCom, which hid or misstated $9 billion in expenses and reserves, is more likely to retain government contracts if it avoids criminal charges, former federal prosecutor David Irwin said. Annual sales to federal, state and local governments total about $1 billion, WorldCom spokesman Peter Lucht said.
"There are certainly going to be issues about a company being too important to fail, when the company is an airline or a communications company," Irwin said.
The proposed settlement would require WorldCom to establish court-approved financial controls and possibly pay a fine if it doesn't comply with them, people familiar with the proposal said.
That would be less damaging than the punishment meted out to ex-Enron auditor Arthur Andersen, whose criminal conviction June 15 forced it to give up its license to audit companies.
WorldCom operates about a quarter of the capacity on the 20 largest U.S. Internet routes, according to Washington-based TeleGeography.
In July, the Clinton, Miss.-based company said it had 20 million customers and carried more than half of the world's Internet traffic.
WorldCom's government customers include the Defense Department, which in April granted the company a 10-year contract to provide as much as $450 million in data-transmission services. Others include the General Services Administration and the Department of Veterans Affairs.
It may take U.S. District Judge Jed Rakoff months to determine whether WorldCom is complying with any settlement, sources said.
Delaying or avoiding a penalty may put WorldCom and Michael Capellas, who will become chief executive officer in two weeks, in a better position to repay creditors and emerge from bankruptcy. WorldCom owes $41 billion to companies, including J.P. Morgan Trust, Mellon Bank, Citibank and AXA Financial, it said after filing the largest U.S. bankruptcy in July.
"If you have a company in bankruptcy and you fine them, all you've done is taken money away from the creditors," said David M. Becker, former SEC general counsel. "If you care about getting money into people's pockets, then you don't fine them."
How much, if anything, WorldCom eventually pays in penalties might depend on how well it complies with requirements of the settlement agreement, the people said. Xerox paid a $10 million fine to settle SEC charges that it inflated revenues by $2 billion between 1997 and 2000.
SEC spokeswoman Christi Harlan declined to comment.
Former SEC Chairman Richard Breeden, who was appointed by Rakoff in July to monitor WorldCom's compensation and handling of documents, declined to comment. So did former U.S. Attorney General Richard Thornburgh, who was asked in August by U.S. Bankruptcy Court Judge Arthur Gonzalez to examine alleged accounting fraud at WorldCom.
The SEC charged WorldCom with fraud on June 26 after the company said it hid $3.9 billion in expenses. The company later added $5.1 billion to the amount it had misstated.
The SEC has filed individual lawsuits against WorldCom's former controller, David F. Myers; former director of general accounting Buford Yates Jr.; and former accounting department heads Betty Vinson and Troy Normand.
Myers, Yates, Vinson and Normand have pleaded guilty to criminal charges brought by U.S. Attorney James Comey in New York and are cooperating with his investigation of alleged criminal securities fraud violations at WorldCom.
WorldCom near deal to avoid charges, fines
By DAVID E. ROVELLA
Bloomberg Business News
NEW YORK -- WorldCom is near a settlement with the Securities and Exchange Commission that may let it avoid fines and criminal charges as regulators seek to help the second-largest U.S. long-distance company emerge from bankruptcy, people familiar with the matter said.
WorldCom, which hid or misstated $9 billion in expenses and reserves, is more likely to retain government contracts if it avoids criminal charges, former federal prosecutor David Irwin said. Annual sales to federal, state and local governments total about $1 billion, WorldCom spokesman Peter Lucht said.
"There are certainly going to be issues about a company being too important to fail, when the company is an airline or a communications company," Irwin said.
The proposed settlement would require WorldCom to establish court-approved financial controls and possibly pay a fine if it doesn't comply with them, people familiar with the proposal said.
That would be less damaging than the punishment meted out to ex-Enron auditor Arthur Andersen, whose criminal conviction June 15 forced it to give up its license to audit companies.
WorldCom operates about a quarter of the capacity on the 20 largest U.S. Internet routes, according to Washington-based TeleGeography.
In July, the Clinton, Miss.-based company said it had 20 million customers and carried more than half of the world's Internet traffic.
WorldCom's government customers include the Defense Department, which in April granted the company a 10-year contract to provide as much as $450 million in data-transmission services. Others include the General Services Administration and the Department of Veterans Affairs.
It may take U.S. District Judge Jed Rakoff months to determine whether WorldCom is complying with any settlement, sources said.
Delaying or avoiding a penalty may put WorldCom and Michael Capellas, who will become chief executive officer in two weeks, in a better position to repay creditors and emerge from bankruptcy. WorldCom owes $41 billion to companies, including J.P. Morgan Trust, Mellon Bank, Citibank and AXA Financial, it said after filing the largest U.S. bankruptcy in July.
"If you have a company in bankruptcy and you fine them, all you've done is taken money away from the creditors," said David M. Becker, former SEC general counsel. "If you care about getting money into people's pockets, then you don't fine them."
How much, if anything, WorldCom eventually pays in penalties might depend on how well it complies with requirements of the settlement agreement, the people said. Xerox paid a $10 million fine to settle SEC charges that it inflated revenues by $2 billion between 1997 and 2000.
SEC spokeswoman Christi Harlan declined to comment.
Former SEC Chairman Richard Breeden, who was appointed by Rakoff in July to monitor WorldCom's compensation and handling of documents, declined to comment. So did former U.S. Attorney General Richard Thornburgh, who was asked in August by U.S. Bankruptcy Court Judge Arthur Gonzalez to examine alleged accounting fraud at WorldCom.
The SEC charged WorldCom with fraud on June 26 after the company said it hid $3.9 billion in expenses. The company later added $5.1 billion to the amount it had misstated.
The SEC has filed individual lawsuits against WorldCom's former controller, David F. Myers; former director of general accounting Buford Yates Jr.; and former accounting department heads Betty Vinson and Troy Normand.
Myers, Yates, Vinson and Normand have pleaded guilty to criminal charges brought by U.S. Attorney James Comey in New York and are cooperating with his investigation of alleged criminal securities fraud violations at WorldCom.
