Allegations of Large-Scale Fraud by MCI Investigated

Federal prosecutors have reportedly opened an investigation into whether long-distance giant MCI defrauded other telephone companies of hundreds of millions of dollars.

Investigators are looking into reports that MCI masked long-distance calls as local calls to avoid paying special-access fees to local carriers across the country, the New York Times reported on its Web site Saturday, citing people involved in the probe. The fees are the largest single source of MCI’s costs for carrying calls, the report said.

WorldCom Inc., which merged with MCI in 1999, changed its name to MCI this year in a bid to restore its credibility after settling charges of an $11-billion accounting fraud.

MCI executives told the New York Times they believed that the investigation was an effort by regional phone companies AT&T;, SBC Communications and Verizon to thwart MCI’s bid to emerge from bankruptcy.

“As always, we take all inquiries by the U.S. attorney’s office very seriously and will cooperate fully,” MCI said in a statement.

The Times said the investigation was launched after Texas customers of SBC Communications reported that long-distance calls were appearing as local calls on caller-ID systems.