Posted on: Monday, May 19, 2003
Sources say WorldCom agrees to $500 million fine
By Andrew Backover
USA Today
WorldCom and the Securities and Exchange Commission have reached a final settlement that would force the company to pay $500 million to victims of its $9 billion accounting scandal, people familiar with the matter say.
The fine, to be paid when WorldCom emerges from bankruptcy protection, could be announced as early as today, these people say. It's the largest fine ever against a non-broker/dealer public company. The biggest before: $10 million against Xerox last year.
The settlement of the SEC's fraud lawsuit against the company would still need approval by Judge Jed Rakoff, who oversees the SEC lawsuit against WorldCom; and Judge Arthur Gonzalez, who oversees the bankruptcy case.
The actual fine is $1.5 billion, but that figure would be reduced to an agreed-upon $500 million through the bankruptcy proceedings, which could set WorldCom free from Chapter 11 by this fall.
The parties agreed to set the initial total higher because the SEC, like other creditors, is likely to see the amount it is owed greatly reduced in reorganization proceedings. The fine comes on top of a partial settlement reached last year. An amount still had to be set.
If approved, the deal would be one of the last hurdles WorldCom must clear to leave its accounting woes behind. It will remove a major distraction for the country's No. 2 long-distance provider, so it can focus on competition in the ravaged telecommunications sector.
Much of the restitution is likely to go to shareholders, who have already lost tens of billions of dollars and are expected to get wiped out by the reorganization plan.
WorldCom has made many other changes, and its cooperation with investigators helped to forge a speedy settlement, people familiar with the matter say. WorldCom revealed $3.9 billion in improper accounting June 25, and the SEC filed a fraud lawsuit the next day.
WorldCom's accounting misdeeds have steadily grown to $9 billion, and they could reach $11 billion.
