WorldCom Inc. is close to a settlement with the Securities and Exchange Commission that would resolve charges it fraudulently misled investors and that would require it to pay one of the largest fines ever levied by the agency, a source familiar with the situation said Sunday.
The settlement would remove a major hurdle for the telephone and data services company, whose accounting scandal is expected to top $11 billion. It also could ease its emergence from Chapter 11 bankruptcy protection, legal experts have said.
WorldCom, which is changing its name back to MCI, declined to comment. SEC officials could not be reached.
WorldCom and the SEC could announce a settlement as early as today, Business Week’s online edition reported Friday. WorldCom, without admitting or denying the fraud allegations, had reached a partial settlement with the SEC in November. As part of that deal, WorldCom agreed to refrain from future securities violations and establish training programs to prevent future problems.
WorldCom’s fine is expected to be “several times larger” than the $10-million fine levied against Xerox Corp. in 2002, the source said. Wall Street firms recently agreed to pay $1.4 billion to settle charges with securities regulators over research practices.
The SEC, which regulates financial markets, charged WorldCom in June with fraud and alleged that the company manipulated its financial records at least as early as 1999 to meet Wall Street expectations. WorldCom is expected to restate more than $11 billion in earnings.
The Ashburn, Va.-based company, which still faces shareholder lawsuits, recently filed a reorganization plan that would cut its debt to $3.5 billion to $4.5 billion, down from $41 billion, and give its creditors control of the company.
Since its bankruptcy filing in July, WorldCom has hired a new chairman and overhauled its management team and board. Scott Sullivan, the firm’s former chief financial officer, has been charged with securities fraud, conspiracy and making false statements about WorldCom’s financial health in SEC filings.
Four other former WorldCom executives pleaded guilty to securities fraud and have agreed to cooperate with authorities probing the case. WorldCom, which aims to emerge from bankruptcy protection this year, also is cooperating with the investigation.
Two reports reviewing WorldCom’s past accounting practices have been delayed at the request of prosecutors, who said early public disclosure of the information might harm their criminal investigations of former Chief Executive Bernard J. Ebbers and other former WorldCom executives, according to court filings. The reports are expected to be filed in June.