Watchdog groups say the revised settlement agreement WorldCom Inc. has entered with the Securities & Exchange Commission is still inadequate, but a government spokesman says the agency's top priority is to deter fraud, not recover all the losses investors suffered.
"That is not the SEC's primary job," says spokesman Peter Bresnan. "Instead its job is to deter fraud." The revised $750 million settlement agreement is the largest civil penalty levied against one company in the history of the SEC, but the National Legal and Policy Center, a Falls Church, Va.-based watchdog group, says it is only a fraction of the estimated $180 billion shareholders lost as a result of a fraud that may be as high as $11 billion. Under the revised settlement agreement, WorldCom would pay a $500 million fine and issue $250 million in common stock to bondholders and shareholders. Judge Jed Rakoff, of the U.S. District Court for the Southern District of New York, on Monday approved the amended agreement. Under federal law, the SEC can fine a company $600,000 per violation or fine it based on the "gross pecuniary gain" the company realized through the public markets as a result of the fraud. For example, the company might have paid a lower interest rate on corporate bonds as a result of its fraud. The SEC considered both those factors as it began an analysis, says Bresnan, but "it's obviously not a strictly mathematical formula that can be applied." In calculating the penalty, the agency also evaluated other factors, including the fine's impact on the company's creditors, WorldCom's cooperation and litigation risks, Bresnan says. WorldCom, which has changed its corporate name to MCI and moved its headquarters from Clinton, Miss., to Ashburn, Va., anticipates emerging from bankruptcy this fall. In a reorganization plan filed with the bankruptcy court in April, WorldCom said it expected to exit bankruptcy with $1 billion in cash and $4.5 billion to $5.5 billion in debt.
