- The Washington Times - Monday, July 7, 2003


A federal judge approved a $750 million settlement yesterday between federal regulators and WorldCom Inc., saying a substantially heavier fine for a corporate accounting fraud scandal would unfairly penalize the company’s 50,000 employees.

Although the fine in the $11 billion case was $250 million higher than originally proposed, U.S. District Judge Jed Rakoff in Manhattan, N.Y., said that driving the telecommunications company out of business was not the goal.

Judge Rakoff said that WorldCom, through a court-appointed monitor, has attempted to overhaul its corporate culture and agreed to continued monitoring to prevent future fraud.

The judge has also obtained from the company’s new chief executive officer a sworn “ethics pledge,” requiring greater opennness than Securities and Exchange Commission rules require.

The SEC and the company had proposed a $500 million fine but agreed to increase that amount after complaints that WorldCom would emerge too easily from bankruptcy.

The new figure adds $250 million worth of stock in the new incarnation of the telecommunications company, now operating as MCI. If the company does not make it out of bankruptcy court and is liquidated, the penalty would remain $500 million.

WorldCom’s problems came to light last year, and the company filed for bankruptcy in July 2002, citing massive accounting irregularities.

The scheme involved falsifying ledgers to record billions of dollars in operating expenses as capital expenses, allowing the company to claim a profit when it was losing money.

Since then, some shareholders have called for the “death penalty,” punishment so severe that it must be liquidated, against the company.

Judge Rakoff said that killing the company “would unfairly penalize 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.”

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