U.S. District Judge Jed Rakoff, who is presiding over the SEC's accounting fraud lawsuit against WorldCom, named business consultant Richard Breeden as the monitor and also set a tentative trial date of March 21.
Rakoff selected Breeden from a list of proposed monitors agreed upon by both the SEC and WorldCom. He said that WorldCom will pay Breeden, who now runs his own company, his regular rate of $800 an hour.
Before he can assume the job, Breeden must sell roughly 6,000 shares he owns in WorldCom, which have become virtually worthless.
"I want a hands on monitor who will report to me what's going on," Rakoff said, adding that "more importantly" he wanted a monitor who will "feel free to look into every nook and cranny to fulfill his function."
Rakoff's order provides that the monitor will have oversight responsibility over all compensation paid by WorldCom. The intent is to prevent "unjust enrichment" and to make sure WorldCom assets are not dissipated by payments that are not necessary to the operation of its business.
Compensation is defined in the order to include salary, severance payments, bonuses, indemnifications, gifts and loans.
The monitor will also confirm that WorldCom has developed document retention policies and that the company has complied with these policies.
After the hearing, Breeden told reporters that he expected to start his work with WorldCom immediately.
"I'm not there to replace the company's management, I'm there to be the eyes and ears of the court," he said.
At a news conference Tuesday to discuss WorldCom's troubles, chief executive John Sidgmore blamed WorldCom's past management and the embattled company's former auditor, Arthur Andersen LLP, and pledged that an internal inquiry would "find the guys that did wrong here."
Sidgmore, who took over in April, said he could not rule out the possibility of bankruptcy for the nation's second-largest long-distance carrier and said more cost cuts were likely.
He said WorldCom has about $2 billion in cash.
"I am not going to stand up here and tell you that there's no way we're going to wind up in bankruptcy of some form, at some point," Sidgmore said. "But right now we are working very, very hard with the banks and others to try and find ways to accomplish our goals without going into bankruptcy."
The possibility is bound to worry WorldCom's Internet customers, but technology analysts said the Internet as a whole should be fine. The Internet will keep running even if WorldCom, which handles half of its U.S. traffic, goes under, analysts said.
"The Internet itself is fairly resilient," said Joel Yaffe, an analyst with Giga Information Group.
A key Democrat in Congress raised the possibility of government intervention should WorldCom go under.
UUNet, a WorldCom subsidiary, is one of the Internet's backbone providers. It controls the wires that Internet service providers use as superhighways to carry Internet traffic between cities and across continents. UUNet handles more than 50 percent of U.S. Internet traffic, including about 70 percent of all e-mails sent within the United States and half of e-mails sent in the world.
Thousands of companies in over 100 countries rely on WorldCom for Internet access, including the Defense Department and the State Department.
Asked about possible layoffs in addition to the 17,000 employees the company has let go from its work force of 80,000, Sidgmore told reporters: "We want to run this business to be operating cash-flow positive. ... And so, we're committed to doing whatever it takes to make that happen."
Sidgmore apologized for "past transgressions" at the company and pledged cooperation as the government investigates.
"We want the bad guys exposed," Sidgmore said. "We want the bad guys punished. And we want to move on with our lives at WorldCom."
Sidgmore said he did not know if WorldCom's founder and former CEO Bernard Ebbers had any prior knowledge of the $4 billion hole in the company's books.
As for Scott Sullivan, the former chief financial officer fired by the company last week, Sidgmore said: "No single operating unit knows what's going on in the rest of the organization, and it all came together at Scott Sullivan's level."
Meanwhile, Cynthia Cooper, WorldCom's auditor who uncovered the telecommunication giant's accounting scandal, has a version of the events that differs from that of the firm's management, people familiar with the matter told the Wall Street Journal.
On its online edition Wednesday, one of the sources told the Journal that Cooper discovered the alleged fraud on her own initiative and met with resistance from Sullivan, when she confronted him with evidence of questionable accounting procedures.
She then went to the head of WorldCom's audit committee, who delayed taking action on her findings, the Journal added. The account of events conflicts with WorldCom's version. The company has said that Cooper uncovered the accounting problems as part of a routine audit.
WorldCom also hasn't disclosed that Cooper might have encountered resistance in her efforts to make her findings public, leading investigators to suspect the company has been less than forthcoming in its disclosures, the report said.
Clinton, Miss.-based WorldCom, which owns MCI Communications, is second only to AT&T in the long-distance market and controls a large part of the Internet's backbone.