Telecommunications giant MCI claims charges brought against it by the Oklahoma attorney general will punish both the company and its customers as it tries to finish bankruptcy proceedings and put its past fraud behind it.
The 15 Oklahoma criminal charges, each of which carry a maximum penalty of 10 years in prison and a $10,000 fine, allege that the company and six employees artificially inflated the value of MCI stock and bonds by intentionally falsifying information filed with the US Securities and Exchange Commission. The attorney general charged both the company and the employees because they all stood to profit.
The charges should not have an effect on the MCI bankruptcy process, said Stasia Kelly, MCI's general counsel.
MCI, still officially known by its prebankruptcy name WorldCom, has a confirmation hearing scheduled to start on 8 September in the federal Bankruptcy Court for the Southern District of New York.
The telecoms company intends to co-operate fully with the Oklahoma attorney general, Kelly said. "Today's action against the company would only punish our 20 million customers and 55,000 employees - 2,000 of which work in Oklahoma.
"MCI has made tremendous progress over the past year and we are working hard to put our house in order. MCI has, and continues to, co-operate with all investigations while implementing sweeping internal reforms."
MCI is working with a corporate monitor, the former US Securities and Exchange Commission chairman, Richard Breeden, to ensure the company does not create another corporate fraud scandal, Kelly said.
Breeden filed a report earlier this week calling on MCI to make 78 changes in its corporate governance.
"Our new management team and board of directors ... are committed to doing all the right things to ensure what happened in the past can never happen again," Kelly said..
Oklahoma attorney general Drew Edmondson believed the Oklahoma charges are the first criminal action against MCI in the US. MCI filed for bankruptcy in July 2002 after revelations of a multibillion-dollar accounting fraud scandal, and the Oklahoma charges allege the crimes happened between October 2000 and March 2001.
In addition to charging the company with securities fraud, Edmondson named six former MCI executives, including former chief executive officer Bernard Ebbers.
Ebbers' lawyer, Reid Weingarten of Steptoe and Johnson, expected that his client will be "fully exonerated" because federal authorities have investigated Ebbers and brought no charges.
"This is not because of any lack of prosecutorial zeal; rather, it is because of a total lack of any evidence that Mr Ebbers committed crimes," Weingarten said. "It is not apparent from the charging document, which contains no specific allegations of wrongdoing by Bernard Ebbers, what the local Oklahoma authorities think they have uncovered that the federal authorities have overlooked."
"It is rare that we name a company in a criminal complaint, but in this case it is justified," Edmondson said in a statement. "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 first five counts allege the defendants, in documents filed with the SEC, "employed a device, scheme or artifice to defraud". Counts six to 10 allege the defendants, "made untrue statement as to a material fact". The remaining five counts allege the defendants, "engaged in a course of business which operated as a fraud".
Grant Gross writes for IDG News Service