WASHINGTON Judge says $750M fine won't kill WorldCom

WASHINGTON (AP) -- A federal judge says a fine higher than the $750 million he approved against WorldCom Inc. would have risked injuring tens of thousands of employees at the beleaguered telecommunications company.
U.S. District Judge Jed Rakoff of New York also said the agreement with the Securities and Exchange Commission to settle a massive, $11 billion accounting case should provide some hope to WorldCom investors.
Killing the company, Rakoff said, "would unfairly penalize its 50,000 employees, remove a major competitor from a market that involves significant barriers to entry and set at naught the company's extraordinary efforts to become a model corporate citizen."
"This is not to say the sins of the past can be forgotten or wholly forgiven," Rakoff wrote in a 14-page decision released Monday. "Those frauds were still colossal and must be punished."
The company's corporate accounting fraud was exposed last year as part of a wave of business scandals that hit Wall Street.
Value of stock
Both sides had proposed a $500 million settlement in May, but agreed to increase that offer with $250 million worth of stock in the new incarnation of the telecommunications company, now operating as MCI.
If the company does not make it out of bankruptcy proceedings, the penalty would remain $500 million.
CEO Michael Capellas said the effort to emerge from bankruptcy "remains on track for later this fall." He promised that the company was committed "to being a role model of corporate governance."
Bankruptcy lawyer Ben Seigel said the stock proposal offers investors "hope -- it might be an unrealistic hope" of recouping at least some of their losses.
Seigel said issuing new stock to disgruntled shareholders "has become a very, very popular vehicle to resolve cases. ... The stock may not be worth anything, but it may become worth something."
Mitch Marcus, a former WorldCom manager who founded the group now known as BoycottMCI.com, suggested stock in the reconstituted company would amount to little.
Marcus said he didn't think $250 million in stock "comes close to being commensurate with the enormity of the crimes that were committed."
Rakoff noted that WorldCom, through a court-appointed monitor, has attempted to overhaul its corporate culture and agreed to continued monitoring.
'Ethics pledge'
The judge has also obtained from the company's new CEO a sworn "ethics pledge" requiring greater openness than current SEC rules.
"The court is satisfied that the steps already taken have gone a very long way toward making the company a good corporate citizen," the judge wrote.
WorldCom filed for bankruptcy in July 2002, citing massive accounting irregularities.
The scheme involved falsifying ledgers to record billions of dollars in operating expenses as capital expenses, allowing the company to claim a profit when it was in fact losing money.
Since then, some shareholders have called for the "death penalty" against the firm, meaning a punishment so severe that it must be liquidated.