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A New Challenge For Rudy G?

A leading investor of WorldCom Inc. reportedly wants former New York Mayor Rudolph Giuliani to be named the company's chairman, The Wall Street Journal reported Monday.

The investor, David Matlin, has started a fund with Giuliani to accumulate at least one-third of WorldCom's bonds. Matlin's group of investors could retain the right to appoint board members if it owns more than a third of the company's bonds.

Sources close to the situation told the Journal that Matlin, who heads a bond-investor group backed by Credit Suisse First Boston, is expected to urge U.S. Bankruptcy Judge Arthur Gonzalez to accept a reorganization plan under which Giuliani would become chairman.

WorldCom spokeswoman Claire Hassett declined to comment on the report and Giuliani spokeswoman Sunny Mindel did not immediately return a call for comment.
WorldCom, the telecommunications giant, admitted a $9 billion accounting fraud earlier this year and is mired in the biggest bankruptcy in U.S. history.

Earlier this month the Securities and Exchange Commission (SEC) announced that it had broadened the scope of its civil fraud charges, originally filed against the telecom company in June, to include an additional charge and to allege that WorldCom misled investors starting at least as early as 1999 through the first quarter of this year.

WorldCom is in settlement talks with the SEC.

While the SEC has pursued civil fraud charges against WorldCom and several former top executives, the Justice Department has been conducting a criminal investigation and has recently brought criminal charges against company executives.

The company's former controller, David Myers, and its former chief financial officer, Scott Sullivan, were arrested in August. Prosecutors alleged the two directed employees to falsify balance sheets to hide more than $3.8 billion in expenses, causing WorldCom earnings to be overstated by $5 billion.

Myers pleaded guilty in federal court in Manhattan in September. Sullivan has denied any wrongdoing.

Michael Capellas, who was appointed chairman, chief executive and president on Friday, agreed to join WorldCom after winning the approval of its committee of official creditors. Matlin, believed to be WorldCom's largest creditor, is not a member of the committee and has not expressed complete confidence in the hiring of Capellas.

Capellas, the former Compaq Computer Corp., told the Journal that he wanted to meet with the former mayor, who founded a consulting company to advise companies on risk management.

"What's not to like? He's 'Man of the Year,'" Capellas said, referring to the Time magazine honor bestowed on Giuliani after his efforts to unify New York City after the Sept. 11, 2001 terrorist attacks. "We are going to see if there is a role for Giuliani. We are moving forward and assembling a world-class board."

Capellas, 48, comes to WorldCom after serving as president of Hewlett-Packard Co. after its $19 billion acquisition of Compaq Computer Corp. He had been Compaq's boss for nearly three years.

Giuliani, a former federal prosecutor, served as mayor of New York City for eight years, from 1994 until January 2002. In 2000, he sought a seat in the United States Senate, but health problems and his public separation from wife Donna Hanover forced him to quit the race, which former First Lady Hillary Clinton ultimately won.

After leaving office, Giuliani turned his attention to his consulting business and writing. In October, he agreed to help Mexico City address its crime problem, reprising the role that made him a popular mayor in New York.

He has also inked a $3 million, two-book deal with Talk-Miramax. The first installment, a guide to effective management called "Leadership" hit the shelves and the bestseller list this year.

Giuliani reportedly turned down an offer to head the Securities and Exchange Commission after the resignation of chairman Harvey Pitt.

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