New York (May 20, 2003) -- MCI, formerly WorldCom Inc., has agreed to pay $500 million to investors as part of an agreement with the Securities and Exchange Commission, resulting in the largest settlement ever imposed on a non broker-dealer company by the securities watchdog.
The agreement would effectively settle charges that MCI defrauded investors by inflating profits by more than $11 billion.A federal judge overseeing MCI's fraud case and a bankruptcy judge overseeing the company's Chapter 11 proceeding must still approve the settlement, according to a Wall Street Journal report.
The SEC is expected to establish a fund for aggrieved WorldCom shareholders and appoint a receiver to distribute money to investors. While the structure of the fund hasn't been finalized, the money will most likely be distributed to investors who owned WorldCom shares during the period when it reported false earnings. Those investors would have to apply for reimbursement.
Some sources agree that MCI’s woes are far from over, considering the size of the settlement.
“This could really pave the way for other interest parties to make filings of their own [against MCI], it doesn’t stop any future actions against them,” said practice management consultant Don Scholl, president of West Chester, Pa.-based DB Scholl Inc.
Scholl among others is all too familiar with the effects accounting scandals like those at MCI, Xerox, and Enron have had on the industry.
As far as the accounting industry is concerned, “any changes to be made [in relation to corporate governance issues] have been made already and companies want to do things right going forward,” said practice management consultant Allan Boress, president of Eustis, Fla.-based Allan S. Boress & Associates. “This is really a more of a powerful message to other companies that says ‘if you do this, you could get socked that much more’ so expect settlements to be that much higher.”
The SEC had charged last June that MCI -- then WorldCom -- manipulated financial records, including improperly accounting for capital spending, as far back as 1999 to meet Wall Street expectations.
Last month, the SEC issued fines totaling $1.4 billion dollars on 10 Wall Street brokerages to settle charges of conflicts of interest between analysts and investors.
-- Seth Fineberg
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