Accused of inflating its profits by at least $9 billion, MCI has reached a settlement with the Securities and Exchange Commission on a civil penalty to be imposed for the company's past accounting practices. The settlement finds the company, formerly called WorldCom, liable for a civil penalty of $1.510 billion. But the actual payment will reduced to just $500 million because of the company's Chapter 11 status.
The settlement is pending approval by the U.S. district court that is overseeing the SEC's lawsuit against the company as well as by the U.S. bankruptcy court that is overseeing the company's Chapter 11 proceedings. If approved by the courts, the payment will be made upon the company’s reemergence from Chapter 11, expected this fall. The court invited interested parties to submit comments on the proposed settlement on or before June 6, 2003.
In a press release commenting on the settlement, The National Legal and Policy Center’s Kenneth Boehm stated, "It is important to highlight that MCI's use of tax loopholes will likely allow it to pay this fine effectively with taxpayer dollars. A May 12, 2003, commentary in Business Week exposed a loophole MCI is attempting to exploit that could keep the company from paying $2.5 billion in taxes to the IRS. The Business Week commentary rightly calls the loophole a perverse tactic." Sen. Rick Santorum (R-Pa.) has drafted an amendment that would close this loophole and keep MCI “from exploiting taxpayers the way that it exploited shareholders and employees. The company falsified its books by $11 billion, resulting in the largest accounting scandal in U.S. history and wiping out nearly $180 billion in shareholder wealth,” according to the release issued by NLPC, a foundation supporting ethics and accountability in government.
In other related news, an independent group of WorldCom Inc. stockholders is organizing a boycott of WorldCom/MCI products and services. "The current bankruptcy reorganization plan, which gives the company to the bondholders and leaves the stockholders with nothing, is unnecessarily harsh," says Neal Nelson, the committee's spokesman. "An alternative plan with 50 percent debt reduction and 50 percent equity dilution is possible and would be more fair to all."
