MCI Settles Fraud Charges

MCI will pay a $500 million civil penalty in a proposed settlement with the U.S. Securities and Exchange Commission over charges of a massive accounting scandal, according to court documents released Monday.

A judgment released Monday by the U.S. District Court, Southern District of New York, actually calls for a civil penalty of $1.51 billion. However, when the telecommunications carrier emerges from bankruptcy, it will be able to satisfy the obligation by paying $500 million, the judgment said. That is expected to happen in the latter part of this year, MCI said in a statement Monday.

Potential Terms

The money is to be distributed to the victims of the alleged fraud, including certain shareholders and bondholders, under the provisions of the Sarbanes-Oxley Act of 2002.

The settlement, which is subject to approval by the court overseeing the SEC's lawsuit against MCI as well as by the court handling MCI's bankruptcy claim, would resolve all of the SEC's claims against the company, according MCI's statement.

Difficult Year

WorldCom is still the legal name of MCI, which has changed its brand name as part of a series of major changes since the financial debacle that began last year. The company intends to change its legal name and has moved its headquarters from Clinton, Mississippi, to Ashburn, Virginia.

The SEC first filed fraud charges against WorldCom in June 2002. In a series of announcements, WorldCom said it would restate its earnings due to accounting irregularities totaling almost $4 billion in June 2002. The company then admitted to a further $3.8 billion in misstatements in August 2002, later increasing the total to more than $9 billion in November 2002.

The Department of Justice brought its first charges against WorldCom executives last August. Now at the helm is Michael Capellas, former chief executive of Compaq. When Compaq merged with Hewlett-Packard, he became president of the new company and resigned five months later to take the new post at MCI.