WorldCom hammers out $500m settlement

The company formerly known as WorldCom took another step toward corporate normalcy with the filing of a $500 million settlement proposal hammered out with the feds.

WorldCom, which now goes by the name MCI, flew high as a major Internet backbone provider until an accounting scandal of titanic proportions collapsed its stock price, put its executive in severe legal peril, forced the company into Chapter 11 bankruptcy protection, and launched a probe by the Security and Exchange Commission.

Under the new stewardship of former Compaq Computer Chief Executive Michael Cappellas, who assumed the CEO title at MCI in November, WorldCom negotiated with the SEC the $500 million settlement, filed Monday with the U.S. District Court for the Southern District of New York.

The settlement, subject to approval of both that court and the bankruptcy court overseeing MCI's Chapter 11 proceedings, slaps the company with a $1.5 billion civil penalty. But because of its bankrupt status, the disgraced company will only have to pony up a third of it.

"As a result of the company's pending bankruptcy case, the proposed settlement provides for satisfaction of the commission's judgment by WorldCom's payment, after review and approval of the terms of the settlement by the bankruptcy court, of $500,000,000," the SEC wrote in announcing the proposal.

Proceeds will go to "victims of the company's fraud," the commission said, subject to the court's approval.

The company said it would pay the civil penalty when it emerges from Chapter 11 protection, probably this fall. It added that the proposed settlement demonstrated progress toward its rehabilitation.

"This settlement recognizes our cooperation with the SEC's investigation, the company's acceptance of responsibility for its past accounting practices and the significant strides we have made in rebuilding MCI as a model of good corporate governance," Michael Salsbury, executive vice president and general counsel for the company, said in a statement. "This is an important milestone in our progress to emerge from Chapter 11 on schedule this fall."

The District Court solicited written comments from anyone "with interest in the case" on or before June 6 and will issue a ruling on the proposal on or after June 11, when it meets with representatives from both the company and the commission.

MCI has acknowledged overstating its income by about $9 billion between 1999 and 2002. The SEC launched its case against the company on June 26 of last year.

On Monday, the company and the commission sounded starkly different notes in looking into the future. MCI stressed that the settlement "will resolve all claims by the SEC against the company for its past accounting practices." The SEC, by contrast, concluded its statement noting that "the commission's investigation into the fraud at WorldCom is continuing."