- The Washington Times - Tuesday, July 22, 2003

Senators questioned yesterday whether the government has been too lenient with WorldCom Inc., awarding it lucrative contracts and allowing it to emerge from bankruptcy free of most debts despite its record-breaking fraud on the public.

At a hearing of the Senate Judiciary Committee, witnesses for the telecommunications giant’s competitors such as Verizon Communications Inc. and AT&T; Corp. criticized the “slap on the wrist” that WorldCom has received after the government severely penalized and drove out of business Enron Corp. and Arthur Andersen LLP for committing similar massive fraud.

Sen. Richard J. Durbin, Illinois Democrat, asked why the Bush administration awarded WorldCom’s MCI division a much-sought contract to build a mobile-phone network in Iraq in the spring, though last year it quickly barred Enron and Andersen from further business with the government after their fraud was revealed.

“Isn’t that sending a message that corporate misconduct of historic proportions is not a factor in doing business with the government?” Mr. Durbin asked.

Noting that 20,000 workers lost their jobs when Chicago-based Andersen was forced out of business by the government’s obstruction of justice lawsuit, while WorldCom continues to employ 55,000, he said he cannot understand why the companies are being treated so differently.

“With WorldCom, it appears they’re doing quite well … not only not being penalized, but being rewarded by this administration,” he said.

“I don’t have any comfort that justice was served.”

Committee Chairman Orrin G. Hatch, Utah Republican, was not as critical as several panel Democrats. But he, too, asked why WorldCom’s creditors are being allowed to emerge as the biggest beneficiaries of the company’s bankruptcy reorganization plan when they unquestioningly provided the money that fueled WorldCom’s fraudulent empire.

“Don’t they have some responsibility” for scrutinizing WorldCom’s books and checking the accuracy of the financial statements that the company revealed had overstated revenue by $11 billion in a bombshell that shook markets in June 2002, he asked.

Former Attorney General Richard Thornburgh, who is leading a court investigation into WorldCom’s financial abuses, testified that the company accumulated its debt of $40 billion before bankruptcy largely because of the deceptions and abuses of its top corporate officers.

But WorldCom’s attorneys and board members argued that the company has paid a heavy price for its wrongdoing by being forced into bankruptcy and agreeing to a record settlement with the Securities and Exchange Commission to pay $750 million in restitution to former stockholders, who lost an estimated $60 billion as a result of its fraud and bankruptcy.

A reorganization plan that is nearing approval in a New York bankruptcy court leaves the company with $5.5 billion of its former debts, along with $12 billion in assets, its attorneys said, far less than the debts of competitors who are not charged with fraud.

The hearing was the first congressional airing of a battle that has been heating up behind the scenes between WorldCom, and competitors, labor unions and public-interest groups who contend that the company has gotten off too easy.

Congressional Republicans appear to have largely deferred to the administration’s strategy of avoiding too much economic devastation by preserving WorldCom as a viable company while remolding it and re-creating it as a model corporate citizen with an exemplary system of financial checks and balances.

No one is charging that the administration is playing favorites for political reasons.

Neither of the two WorldCom officers most implicated in the fraud — former Chief Executive Bernard Ebbers or former Chief Financial Officer Scott Sullivan — was a major contributor to President Bush or Republican causes.

By contrast, the former chief executive of Enron, Kenneth L. Lay, was Mr. Bush’s top contributor in the 2000 presidential campaign, though he, too, has escaped prosecution for Houston-based Enron’s crimes.

Persistent and highly vocal opposition from WorldCom’s critics recently prompted Senate Governmental Affairs Committee Chairman Susan Collins, Maine Republican, to quietly initiate a review of the company’s contractor status with the General Services Administration.

But other than that, Congress has not sought to intervene with the administration’s handling of WorldCom.

Former Attorney General Willi-am Barr, appearing as a witness for Verizon, contended that WorldCom does not meet requirements that contractors show they are financially stable, because by its own admission it is unable to even produce reliable financial statements.

“In my view, the administration is flouting the provision of law with respect to government contracts,” he said.

“It’s a disgrace.”

But another former attorney general, who served during the 1960s, and MCI board member, Nicholas Katzenbach, said any further punishment of the company would only benefit its competitors.

It would force the company to disband, prompting the layoff of 55,000 workers, and leaving creditors and stockholders with less compensation than they would receive under the reorganization plan.

“Isn’t it a ploy to reduce competition?” he asked of the anti-WorldCom campaign, noting that many competitors are poised to swoop in and snap up the company’s assets at bargain prices if it liquidates.

“I cannot see how punishing innocent people who were not a part of the fraud serves the interest of justice.”

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