Judge approves WorldCom settlement
A US judge has approved a $750m (€662m) settlement between US regulators and WorldCom, saying a substantially heavier fine for a corporate accounting fraud scandal would “unfairly penalise” the company’s 50,000 employees.
Although the fine in the $11bn (€9.71bn) case was $250m (€220m) higher than originally proposed, Judge Jed Rakoff of Manhattan said that driving the telecommunications company out of business was not the goal.
Judge Rakoff noted that WorldCom, through a court-appointed monitor, has attempted to overhaul its corporate culture and agreed to continued monitoring to prevent similar fraud from recurring.
“The court is satisfied that the steps already taken have gone a very long way toward making the company a good corporate citizen,” the judge wrote.
“This is not to say the sins of the past can be forgotten or wholly forgiven,” he said. “Those frauds were still colossal and must be punished.”
“The proposed settlement is not only fair and reasonable but as good an outcome as anyone could reasonably expect in these difficult circumstances,” Judge Rakoff said in a 14-page decision.
The Securities and Exchange Commission and the company had initially proposed a $500m (€441m) fine to settle the $11bn (€9.71bn) case, but eventually agreed to increase that amount after complaints that WorldCom, the second largest long-distance telephone service provider in the US, would emerge too easily from bankruptcy court.
WorldCom’s problems came to light last year, and the company filed for the biggest bankruptcy in US history in July 2002, citing massive accounting irregularities.
Since then, some shareholders and former employees have called for the so-called “death penalty” against the firm – punishment so severe that it ceases to function.
“Undoubtedly the settlement will be criticised” by some shareholders, the judge said, “and those professed pundits and ideologues for whom anything less than a corporate death penalty constitutes an outrage”.
He added that to kill the company “would unfairly penalise its 50,000 employees, remove a major competitor from a market that involves significant barriers to entry, and set at naught the company’s extraordinary efforts to become a model corporate citizen”.
WorldCom mis-stated billions of dollars in regular operating expenses as capital expenditures, allowing it to grossly overstate earnings.
WorldCom, now operating as MCI while it tries to emerge from bankruptcy court, did not immediately comment.
Several former executives have already pleaded guilty to conspiracy and securities fraud in connection with the collapse of the company.
Former chief financial officer Scott Sullivan, the highest corporate official charged, has pleaded not guilty and is awaiting trial.
