Securities and Exchange Commission v. WorldCom, Inc.

The SEC filed its initial Complaint in this matter on June 26, 2002, one day after WorldCom announced its intention to make a major restatement of its previously reported income. The SEC's complaint charged that WorldCom had inflated its income by approximately $3.8 billion through an unlawful scheme, and sought the appointment of a corporate monitor for WorldCom, injunctive relief, and a civil monetary penalty. The SEC's case was assigned to the Honorable Jed S. Rakoff, of the Southern District of New York.

On July 3, 2002, Judge Rakoff appointed former SEC Chairman Richard Breeden as WorldCom's Corporate Monitor.

On July 21, 2002, WorldCom filed for reorganization in bankruptcy pursuant to Chapter 11 of the Bankruptcy Code. WorldCom's bankruptcy proceeding is still pending in the Bankruptcy Court of the Southern District of New York before the Honorable Arthur J. Gonzales.

On November 1, 2002, the SEC amended its complaint against WorldCom to allege additional violations, broaden the time period for those violations back to 1999, and recognize WorldCom's acknowledgment that its improper overstatement of income amounted to approximately $9 billion during the period covered by the SEC's charges. Additional information concerning the amended complaint is available on this website.

On November 26, 2002, Judge Rakoff entered a Judgment of Permanent Injunction, partially resolving the SEC's case against WorldCom. That judgment imposed all of the equitable relief the SEC sought against WorldCom, as well as additional equitable relief. Further information about this judgment is available on this website.

The Final Judgment as to Monetary Relief
On July 7, 2003, Judge Rakoff approved the proposed settlement of the SEC's claim for a civil penalty against defendant WorldCom, and entered a Final Judgment as to Monetary Relief.

The Final Judgment as to Monetary Relief provides that WorldCom is liable for a civil penalty in the amount of $2,250,000,000. It also provides that, in the event of a confirmation of a plan of reorganization of WorldCom by the Bankruptcy Court, this obligation shall be satisfied by the company's payment of $500,000,000 in cash and by its transfer of common stock in the reorganized company having a value of $250,000,000 to a Distribution Agent to be appointed by the District Court. Under the terms of the settlement, the funds paid and the common stock transferred by WorldCom to satisfy the SEC's judgment will be distributed to victims of WorldCom's fraud, pursuant to section 308 (Fair Funds for Investors) of the Sarbanes-Oxley Act of 2002. The Bankruptcy Court overseeing WorldCom's bankruptcy reorganization has not yet reviewed the settlement, and the settlement is subject to the Bankruptcy Court's approval. Further information about the terms of the settlement is available on this website.

Investors who believe that they may be eligible for a distribution from the SEC's judgment against WorldCom:
Should know that under the proposed distribution plan the SEC outlined on June 6, 2003, if you purchased WorldCom securities after the company's announcement of its accounting fraud on June 25, 2002, those securities will not make you eligible to receive victim compensation under the distribution plan;

May wish to review the Appendix of the Commission's June 6, 2003 filing with the District Court, which outlines the distribution plan to be proposed by the SEC; and

Need not do anything at this time to make a claim to these funds.

Shareholders in WorldCom should be aware that the company anticipates that on the effective date of its bankruptcy reorganization, all outstanding WorldCom shares will be canceled, and accordingly will be rendered valueless. (See section 5.09 of WorldCom's Plan of Reorganization). WorldCom expects that it will emerge from bankruptcy later this year, at which point its existing shares would be rendered valueless under its Plan. If you are currently considering purchasing stock in WorldCom, or in any company that is in bankruptcy, you are strongly urged to read the SEC's brochure on Corporate Bankruptcy.

Settled for $750 million in cash and stock. The $750 million -- consisting of $500 million in cash and $250 million in new stock -- will go to bondholders and shareholders who lost money in the fraud.

Unavailable

Unavailable

None