$750M Worldcom Settlement OK'd

A federal judge on Monday approved a $750 million settlement between federal regulators and WorldCom, Inc., saying a substantially heavier fine for a corporate accounting fraud scandal would "unfairly penalize" the company's 50,000 employees.

Although the fine in the $11 billion case was $250 million higher than originally proposed, U.S. District Judge Jed Rakoff of Manhattan said that driving the telecommunications company out of business was not the goal.

Rakoff noted that Worldcom, through a court-appointed monitor, has attempted to overhaul its corporate culture and agreed to continued monitoring to prevent similar fraud from recurring.

"The court is satisfied that the steps already taken have gone a very long way toward making the company a good corporate citizen," the judge wrote.

"This is not to say the sins of the past can be forgotten or wholly forgiven," Rakoff said. "Those frauds were still colossal and must be punished."

"The proposed settlement is not only fair and reasonable but as good an outcome as anyone could reasonably expect in these difficult circumstances," Rakoff said in a 14-page decision.

The Securities and Exchange Commission and the company had initially proposed a $500 million fine to settle the $11 billion case, but eventually agreed to increase that amount after complaints that Worldcom would emerge too easily from bankruptcy court.

WorldCom's problems came to light last year, and the company filed for bankruptcy in July 2002, citing massive accounting irregularities.

Since then, some shareholders and former employees have called for the so-called "death penalty" against the firm — punishment so severe that it ceases to function.

"Undoubtedly the settlement will be criticized" by some shareholders, the judge said, "and those professed pundits and ideologues for whom anything less than a corporate death penalty constitutes an "outrage'."

Rakoff said to kill the company "would unfairly penalize its 50,000 employees, remove a major competitor from a market that involves significant barriers to entry, and set at naught the company's extraordinary efforts to become a model corporate citizen."

Worldcom misstated billions of dollars in regular operating expenses as capital expenditures, allowing them to grossly overstate earnings.

A spokesman for the SEC had no immediate comment. A call to WorldCom, now operating as MCI while it tries to emerge from bankruptcy court, was not immediately returned.

Several former executives have already pleaded guilty to conspiracy and securities fraud in connection with the collapse of the company.

Former chief financial officer Scott Sullivan, the highest corporate official charged, has pleaded innocent and is awaiting trial.