WorldCom, SEC Agree to Partial Settlement of Case
A federal judge Tuesday approved a partial settlement in a securities fraud case against WorldCom Inc., in which the telephone company accepted allegations of fraud and agreed not to violate securities laws in the future.
“This shows the company has made laudable progress in moving toward a much more positive position and the correction of past mistakes,” U.S. District Judge Jed Rakoff said in a hearing in New York.
Rakoff said WorldCom agreed to retain consultants to perform a separate review of the company’s internal accounting controls and policies. It also will undertake a mandatory training program for all its officers and employees involved in accounting and financial reporting.
A monitor appointed in the case also will continue its efforts and its role may be expanded by the court. The federal court also will determine what penalty WorldCom will face for past violations, Rakoff said.
“This was a critical prerequisite to going forward with a rescue of WorldCom,” said James Owers, professor of finance at Robinson College of Business at Georgia State University in Atlanta.
“All of those questions [about WorldCom’s viability] will be eased in terms of the employees who work there but probably most critically for clients’ potential to do business” with WorldCom, Owers said. “This is a major clearing of the stage.”
WorldCom still faces shareholder lawsuits and probes by Congress. The SEC, which regulates financial markets, charged WorldCom in June with fraud and alleged that the company manipulated its financial records to meet Wall Street expectations.
Clinton, Miss.-based WorldCom filed the world’s largest corporate bankruptcy case in July and has said it expects to restate more than $9 billion in earnings.
This month, WorldCom named Michael Capellas, former president of Palo Alto-based computer maker Hewlett-Packard Co., as its new chairman and chief executive, effective Dec. 2. It also has hired restructuring experts and named new board members to fix the problems of the past.
Four former WorldCom executives have pleaded guilty to securities fraud and have agreed to cooperate with authorities probing the case. Former Chief Financial Officer Scott D. Sullivan, who the company fired in June, has been indicted on seven counts of fraud.
The partial settlement with the SEC will go further toward helping WorldCom regain the trust of Wall Street and customers, legal experts said.
“Not only does it put the SEC litigation behind WorldCom, but also sends a very strong message to investors and bondholders and lenders that [the company is] making peace with the government and you can bank on us in the future,” said David Howard, a partner with law firm Dechert in Philadelphia.
