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Financial

MCI Settlement: What's Next?

A record-breaking settlement in which MCI (Nasdaq: MCIT) could pay the Securities and Exchange Commission (SEC) $500 million would close the books on the agency's investigation of the company formerly known as WorldCom. But it won't end the SEC's investigation of individuals.

Late Monday, MCI and the SEC issued statements saying the company will pay $500 million if both the Bankruptcy Court and the District Court hearing the Commission's motion against WorldCom approve (see MCI to Pay Record Settlement). Both parties have been asked by the District Court to provide more information, and a court conference with all parties is set for June 11.

The SEC's settlement bid actually calls for WorldCom to pay a civil penalty of $1.510 billion. But an SEC spokesman says the amount was knocked down due to WorldCom's beleaguered financial situation. If the court approves the terms, the money will be paid out after MCI emerges from Chapter 11, which execs say is on track for this fall (see WorldCom Plans Re-Emergence).

The SEC maintains that WorldCom "materially overstated" its income by about $9 billion between 1999 and the first quarter of 2002. As a result, if money is paid by MCI, it will be "distributed to victims of the company's fraud," according to yesterday's SEC statement.

MCI's statement doesn't acknowledge any wrongdoing, and spokespeople say the SEC's investigation into fraud at the company was brought about by the actions of a few individuals, who have since departed.

And there's the rub. The SEC is finished looking into the company as an entity, but it is not finished investigating individuals. Yesterday's SEC press statement, in fact, reminds the world that four civil suits have been brought by the commission against WorldCom's ex-controller, David F. Myers; ex-director of general accounting, Buford "Buddy" Yates Jr.; and former accountants Betty L. Vinson and Troy M. Normand.

These individuals have been barred by the SEC from working in similar jobs ever again. There have been no decisions about monetary damages or fines resulting from their cases.

Separately, Justice Department charges against Myers and ex-CFO Scott Sullivan are still pending (see Ex-WorldCom Execs Charged With Fraud).

Observers are waiting to see what happens as all these cases wend their way through the SEC and subsequent court processes. Folk also are eager to see what may befall ex-CEO Bernard Ebbers, who hasn't been charged with anything -- yet.

In court filings last week, WorldCom said Ebbers still owes $408.2 million in a consolidated promissory note representing all the loans he took from the company. He missed the first of five planned payments due -- $25 million was payable April 29.

MCI is making no public statement on the Ebbers situation.

At least one observer thinks the likelihood of making civil or criminal charges stick against any of these individuals is open to question after this week's news. "I think the amount of the settlement seems small... more of a slap on the wrist," says Derk G. Rasmussen, a director at RGL, a forensic accounting and consulting firm. It could bode ill, he says, for the SEC's ultimate success in filing civil or criminal charges against individuals.

The SEC may have had a good case against the company but was unable to "get blood from a turnip," Rasmussen says. But it's also possible their evidence was weak, that the SEC couldn't demonstrate a paper trail showing airtight cause and effect.

"The test will be on the criminal side, whether those guilty of alleged wrongdoing go to jail, go to country club jails, or skate," he says.

— Mary Jander, Senior Editor, Light Reading

BobbyMax 12/5/2012 | 12:02:06 AM
re: MCI Settlement: What's Next? MCIWorldcom nearly stole about 11 Billion dollats. The currently allocated amount in the amount of $500 Million is not enough. This settle amount is big joke and should be reversed by the court. The govermentn has also been giving a lot of business to MCI. It was not expected that the government would play of good cop and bad cop story.

If the WorldCom cannot pay the entire amount, they should in installments. The company management has violated civil and criminal laws.
These guys should be put in jail for the longest [period of time.
jnj 12/5/2012 | 12:02:03 AM
re: MCI Settlement: What's Next? Worldcon should be liquidated
it never absorbed it's acqusitions to build a unified communications company..it was just a fraud..now it gets to hide behind the good name of MCI and come out of bk without the debt burden of the other telco's..slick..this company was saved by a group of wallstreet smart guys who bought the bonds and got control of the company..capellas gives them credibility(they wanted Rudy Guiliani) and these guys walkaway with a sweet deal..with gov't contracts..it really
is a joke..the market could have easily absorbed worldcon customers and consolidation would help the industry....man a lot of people get screwed with this deal.
tly 12/5/2012 | 12:01:52 AM
re: MCI Settlement: What's Next? 500 million is not enough. They will get that back from the IRS when they file thier revised tax returns for thier overstated income between 1999 and 2002.

Slap on the wrist.
telebud 12/4/2012 | 11:39:24 PM
re: MCI Settlement: What's Next? The SEC is finished looking into the company as an entity, but it is not finished investigating individuals. Yesterday's SEC press statement, in fact, reminds the world that four civil suits have been brought by the commission against WorldCom's ex-controller, David F. Myers; ex-director of general accounting, Buford "Buddy" Yates Jr.; and former accountants Betty L. Vinson and Troy M. Normand.

These individuals have been barred by the SEC from working in similar jobs ever again. There have been no decisions about monetary damages or fines resulting from their cases.
>>>>
Wow!! that ought to teach em to do that again!!!
These EXECS should be BEHIND BARS not just barred
from similar jobs.
They are CROOKS and BROKE Peoples lives.
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