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FRONTLINE: WorldCom: The Wall Sreet Fix

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11.21.03
Politics and Economy:
A Question of Fairness
More on This Story:
WorldCom: Where Are They Now?

NOW's report "Rewriting the Rules" tells the story of a shareholder's lawsuit against WorldCom, a lawsuit filed before that company became the biggest bankruptcy in U.S. history. Below is an update on where the company and the major figures in the WorldCom story are now. We also have news of developments in notorious corporate scandals.




WorldCom — The Company

On November 1st, a federal bankruptcy judge approved WorldCom's reorganization. The move was seen as a breakthrough for the struggling company since creditors and scandals have controlled WorldCom for over a year.

The decision by Arthur J. Gonzalez of New York will allow WorldCom to keep virtually all of its assets while eliminating more than $35 billion in debt. Citing that, "The primary goal of Chapter 11 is to promote the rehabilitation of the debtor" Justice Gonzalez ruled that the chief function of the process is prevent the liquidation of a company for the sake of saving jobs and the continued production of goods and services.

Under the new plan WorldCom's debt will be reduced from $41 billion to $5.8 billion. The decision also allows WorldCom to carry out its settlement with the SEC. The SEC agreement states that the company will give a total of $250 million in cash and $500 million worth of new stock to stockholders who can prove they were harmed by the company's fraud.

On November 7, 2003, the SEC announced that former SEC Chairman Richard C. Breeden, who is currently serving as WorldCom's court-appointed Corporate Monitor, will be the Distribution Agent to supervise the distribution of the SEC's civil penalty judgment against WorldCom. Some estimates suggest that WorldCom shareholders lost as much as $200 billion due to its collapse. Details of the ongoing investigation are available at the SEC's Spotlight on WorldCom.

WorldCom, which is now doing business under the MCI brand name, is the nation's second largest long-distance company with more than 20 million customers.

Bernard Ebbers, former CEO of WorldCom

Mr. Ebbers has only made two public statements since his company filed for Chapter 11. One was before his church and the other before a Congressional hearing, but in both he maintained that he did not knowingly commit fraud.

The state of Oklahoma has been able to do something that federal investigators have not been able to do: bring criminal charges against the former CEO of WorldCom. The 15-count criminal complaint maintains Ebbers and five former executives gave false information by overstating the income and assets of the company.

Oklahoma Attorney General Drew Edmondson stated in his press conference: "It is rare that we name a company in a criminal complaint, but in this case it is justified...The decision to commit this fraud was a company decision. This is not some rogue employee trying to line his own pockets. This was a conscious decision made for the benefit of the company."

The SEC has said they are disappointed with Oklahoma's actions and some U.S. Attorney's have complained that it could interfere with the federal case against Ebbers and WorldCom. Some analysts fear that Oklahoma's decision to move independently may compromise evidence and witnesses for the federal case pending against WorldCom by showing the federal case to Ebbers' attorneys before the federal authorities are prepared to go public.

Bernard Ebbers turned himself in on Wednesday, September 3rd, 2003 in Oklahoma pleaded not guilty, and was freed after posting $50,000 bail. If convicted each defendant could face 10 years in jail and a $10,000 fine for each charge. Many experts fear that proving criminal wrongdoings will be difficult unless former CFO, Scott Sullivan, testifies against Ebbers.

  • Read the Oklahoma Complaint

    Scott Sullivan, former CFO of WorldCom

    Scott Sullivan plead not guilty to federal charges alleging he directed others to hide billions of dollars of expenses to make WorldCom look profitable to investors.

    Responsible for what many call the biggest accounting fraud in U.S. history, Sullivan has also been named in a criminal charge in Oklahoma. The case hinges on the possibility that Sullivan will testify against Ebbers. No word on whether Sullivan will do just that. Sullivan remains persistent in his claims that he is innocent.

    Jack Grubman, former analyst at Salomon Smith Barney

    Grubman left Salomon Smith Barney with a $32 million severance package and $50,000 every three months plus an office at Citigroup. The bank is also paying for his legal expenses.

    He has been named in hundreds of arbitration cases filed with the National Association of Securities Dealers. New York State Attorney General Eliot Spitzer, granted Grubman a deal where he escaped criminal prosecution from stock fraud but paid $15 million in fines. Grubman's company was fined an additional $200 million. The settlement also subjects Grubman to a lifetime ban on functioning as a broker, dealer, investment advisor, employee of investment company or municipal securities dealer.

    Some Wall Street columnists have defended Grubman saying he was caught up in the whirlwind in the late 1990's like everyone else and is being punished now. But many identify him as a symbol of the dot-com excess and the conflict of interest that arose from brokerage firms acting as both stock analysts and consultants at the same time.

  • Read details of the settlement from the New York Attorney General's Office.

    Sources: THE SECURITIES AND EXCHANGE COMMISSION; THE NEW YORK TIMES; THE STATE OF OKLAHOMA ATTORNEY GENERAL'S OFFICE; FORBES; THE WASHINGTON POST; THE WALL STREET JOURNAL; BANK & LENDER LIABILITY LITIGATION REPORTER

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