Worldcom Bankruptcy News

Senate Judiciary Committee Urged to Strip WorldCom's Assets

WASHINGTON — The federal government and bankruptcy law have not punished WorldCom enough, organized labor and rivals of the bankrupt telecommunications company told Congress on Tuesday.

Demands to strip WorldCom, which has admitted to massive fraud, of some of its assets and government contracts were made in a Senate Judiciary Committee hearing.  William Barr, a former U.S. attorney general who represents Verizon, said WorldCom should "not be able to use its ill-gotten gains to its advantage in the market."
" When a crime is committed, the government's interest is not in preserving the assets accumulated by a criminal enterprise but in securing the disgorgement of all ill-gotten gains," he said.

WorldCom, which plans to change its name officially to MCI, a long distance carrier it purchased in its boom days, filed for bankruptcy about a year ago after disclosing it had overstated billions of dollars in income. Investors lost nearly $200 billion.

Competitors say WorldCom's reorganization will give it an unfair advantage by erasing much of its $41 billion in debt. The Ashburn, Va.-based company is expected to emerge from bankruptcy with about $5.5 billion in debt, representing about 41 percent of the post-bankruptcy value of the company.

Morton Bahr, president of the Communications Workers of America, said WorldCom "is positioned to emerge from bankruptcy with the strongest balance sheet in the telecommunications industry."

"This will cause further destabilization and job loss in the struggling telecom sector and send a message to corporate America that crime pays," Bahr said.

WorldCom has agreed to pay a $750 million fine to settle its civil fraud suit with the Securities and Exchange Commission.

Sen. Orrin Hatch, R-Utah, head of the Judiciary Committee, said his panel would decide whether federal bankruptcy law "is set up to make crime pay" and needs revision. Nicholas Katzenbach, a former U.S. attorney general who is a member of WorldCom's new board of directors, said calls for the federal government to take new punitive steps were the work of competitors that wanted to see WorldCom out of business.

"The draconian punishment advocated by MCI's opponents would, at best, be a futile gesture and, at worst, would inflict further punishment on the innocent," he said.
Richard Thornburgh, the independent examiner in the WorldCom bankruptcy case, said he hoped to finish a third and final report on the company by the end of September but did not know if that report would be filed with the company's Manhattan-based bankruptcy court before a reorganization plan is approved.

The Justice Department picked Thornburgh, another former U.S. attorney general, to investigate WorldCom as part of its strategy to restore investor confidence in Wall Street after revelations of accounting fraud at the giant telecommunications company and other corporations.

Thornburgh said WorldCom, which has replaced its board of directors and top managers, had largely cooperated with his investigators.

But "recent requests for documents have been a bit frustrating," he said.

In his two previous reports on the company, Thornburgh determined that former chief executive officer Bernie Ebbers and Scott Sullivan, the company's former chief financial officer who faces criminal charges for fraud, had dominated WorldCom. The board of directors and other management had placed no checks or restraints on their actions.
Thornburgh also criticized the company's loans of more than $400 million to Ebbers, who hasn't been charged with any wrongdoing. Thornburgh said the loans didn't have sufficient collateral, and they "highlighted the extent of Mr. Ebbers' business activities that were not related to WorldCom."

But Thornburgh said it was "premature to discuss or identify other persons" who may be charged with fraud.

Deputy Attorney General Larry Thompson said investigations into corporate crime would be "prosecuted in a vigorous and aggressive manner."

"But we're not going to have what I would call a lynch-mob mentality with respect to any corporate executive," he said.

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