WorldCom to pay $500m fine over accounting fraud

WORLDCOM has agreed to pay about $500 million to settle Securities and Exchange Commission charges that the telephone company overstated profits

The penalty, which must be approved by US District Court Judge Jed Rakoff, would be the largest levied against a company for accounting fraud. The SEC set a $1.5 billion penalty and agreed in advance to reduce it by two-thirds as part of WorldCom’s Chapter 11 proceedings. Rakoff may make a decision today.

The settlement would lift an obstacle to chief executive Michael Capellas’s effort to guide WorldCom out of the largest US bankruptcy by October. The size of the penalty will help SEC chairman William Donaldson show that the commission has toughened its stance against companies that commit fraud, lawyers said. A partial deal in November had left open the possibility WorldCom may avoid paying a fine.

WorldCom spokeswoman Claire Hassett declined to comment. John Heine, a spokesman for the SEC, declined to comment on the settlement.

WorldCom, the second-largest US long-distance telephone company, won’t admit or deny guilt as part of the agreement, which must also be approved by bankruptcy Judge Arthur Gonzalez, the people said. WorldCom is changing its name to MCI to help distance the company from the accounting scandal and bankruptcy. The Clinton, Mississippi-based company is also moving its headquarters to Ashburn, Virginia.

The structure of the fine may be similar in nature to that imposed on Citigroup Inc as part of a $1.4 billion settlement between the SEC and Wall Street firms over conflicts of interest in their research, one person familiar with the case said.

Citigroup’s penalty was to be divided into payments to the government, restitution to investors and funding for independent research. The SEC needed to demand a large fine from WorldCom given the size of the accounting misstatements.