WorldCom Offers More in Settlement
WorldCom Inc. is offering an additional $250 million in common stock to a proposed $500-million accounting fraud penalty, after investors complained the initial settlement was too small.
The revised settlement proposal, announced Wednesday, was reached with the Securities and Exchange Commission and is subject to a federal bankruptcy judge’s approval.
The telecom firm, which is changing its name to MCI, would issue the shares after the company reorganizes and its new stock is trading. The new shares “would allow victims of the fraud to share in the potential upside of owning WorldCom common stock when it emerges from bankruptcy,” the SEC said.
In May, WorldCom agreed to settle the SEC’s civil fraud charges by paying $500 million to shareholders who lost money because of the accounting scandal that drove the company into collapse last year.
The additional funds were added to the settlement to address concerns raised by U.S. District Judge Jed S. Rakoff, the New York judge overseeing the case. The revised settlement has the support of WorldCom’s creditors, the SEC said.
WorldCom Chief Financial Officer Bob Blakely called the revised proposal “another significant step toward MCI’s emergence from Chapter 11 expected this fall.”
The previous settlement actually called for a $1.5-billion fine, but the amount would be reduced to $500 million as part of the company’s bankruptcy case.
Critics of the initial settlement included WorldCom competitors AT&T;, Verizon Communications Inc. and SBC Communications Inc., which urged Rakoff to reject the proposal and seek a harsher penalty. Critics have called the settlement puny, given WorldCom’s revenue and the scope of the fraud, which has soared to an estimated $11 billion.
Verizon spokesman Peter Thonis said the revised settlement still is “completely insufficient” and said the courts should order WorldCom to relinquish its “ill-gotten gains” by liquidating the company’s assets.
“This company really shouldn’t even be in Chapter 11,” Thonis said.
