SEC Files Suit To Stop Worlcom From Paying Severance To Rank and File Employees!

Security and Exchange Commision ^ | 6/27/2002 | SEC

[Orangedog]

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Securities and Exchange Commission

Washington, D.C.

Litigation Release No. 17588 / June 27, 2002

Accounting and Auditing Release No. 1585 /June 27, 2002

Securities and Exchange Commission v. WorldCom, Inc., Civil Action No. CV (S.D.N.Y.) (June 26, 2002)

SEC Charges Worldcom with $3.8 Billion Fraud
Commission Action Seeks Injunction, Money Penalties, Prohibitions on Destroying Documents and Making Extraordinary Payments to WorldCom Affiliates, and the Appointment of a Corporate Monitor

The Securities and Exchange Commission filed a civil action yesterday in federal district court in New York charging major global communications provider WorldCom, Inc. with a massive accounting fraud totaling more than $3.8 billion. The Commission's complaint alleges that WorldCom fraudulently overstated its income before income taxes and minority interests by approximately $3.055 billion in 2001 and $797 million during the first quarter of 2002.

The complaint further alleges that WorldCom falsely portrayed itself as a profitable business during 2001 and the first quarter of 2002 by reporting earnings that it did not have. WorldCom did so by capitalizing (and deferring) rather than expensing (and immediately recognizing) approximately $3.8 billion of its costs: the company transferred these costs to capital accounts in violation of established generally accepted accounting principles ("GAAP"). These actions were intended to mislead investors and manipulate WorldCom's earnings to keep them in line with estimates by Wall Street analysts.

The complaint charges WorldCom with violating various antifraud and reporting provisions of the federal securities laws, including Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13a-1, 13a-13 and 12b-20. The Commission is seeking court orders permanently enjoining WorldCom; imposing civil monetary penalties; prohibiting WorldCom and its affiliates, officers, directors, employees, and agents from destroying, altering, or hiding relevant documents; prohibiting WorldCom and its affiliates from making any extraordinary payments to any present or former officer, director, or employee of WorldCom or its affiliates, including but not limited to any severance payments, bonus payments, or indemnification payments; and appointing a corporate monitor to ensure that documents are not destroyed and that no such extraordinary payments are made.

In a related action yesterday, the Commission ordered WorldCom to file with the Commission, under oath, a detailed report of the circumstances and specifics of these matters by 8 a.m. next Monday, July 1.

The Commission thanks the U.S. Attorney's Offices for the Southern District of New York and Southern District of Mississippi, the U.S. Department of Justice, and the Federal Bureau of Investigation for their cooperation in this matter.

The Commission's investigation is continuing.

	SEC Complaint in this matter
	Order Requiring the Filing of a Sworn Statement

 

http://www.sec.gov/litigation/litreleases/lr17588.htm

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Modified: 06/27/2002

[Orangedog]

I work at another telecom down the road from one of Worlcom offices and know people who work there. Everyone there (about 1200 people) is expecting to be laid off tomorrow. Like myself and many others who work in the industry, they have seen their 401k gutted, their bonuses cancelled, and raises put off for the past year or so. Most of them know that they will be out of a job very soon, and there are not any jobs in this industry to be had. But today they find out that the SEC has filed to prevent Worldcom from paying out any severance to the rank and file employees, as well as the top officers and executives. It was the people at the top that defrauded the public, the feds, and investors, but now the SEC is will not allow any of the employees (who have done nothing wrong) to be paid any severance.

If you think this is as screwed up as I do, PLEASE email or call your congressmen and Senators in DC. I can understand the SEC preventing the company from handing out golden parachutes to the officers who knew about or participated in their earnings fraud, but why are they trying to do this to the rank and file who have been shafted along with everyone else who chose to put their faith in their company

[Timesink]

I don't want to be picky, but do we have any reason to believe Worldcom had any intention in the first place of giving any severance to those being canned tomorrow? After all, the reason they're firing all those people is because they suddenly found out they have no money.

We as Freepers should abandon all business dealings with Worldcom, though, because of what its executives did to line their own pockets at the expense of the rank-and-file employees. For more of us, that means dumping MCI as your long distance carrier. I've used MCI for the last five years, but last night I switched to AT&T.

[Vladiator]

That Harvey Pitt...
Always looking out for the little guy.

[Psycho_Bunny]

"making any extraordinary payments to any present or former officer, director, or employee of WorldCom or its affiliates, including but not limited to any severance payments,"

Your title doesn't jive with the facts.  The SEC is not prohibiting market-rate payments....they're prohibiting the 'Sweetheart' crap that WorldCom and other such companies are famous for...like the 400 million dollar loan the board gave the former CEO.

Basically, they're attempting to protect the company from 20 million dollar severance packages for the Senior Vice Presidents who are going to start bailing out.

 

[Rodney King]

But today they find out that the SEC has filed to prevent Worldcom from paying out any severance to the rank and file employees, as well as the top officers and executives

It is not their money to give. The money belongs to those who were defrauded, despite how bad I feel for the laid off employees.

(Although, I don't feel bad for the gutted 401K's. Anyone who puts all of their eggs in one basket undertakes a lot of risk. Hint: Do not invest all of your money where you work.)

[laurav]

It does stink that it's always the rank and file who get screwed the most. I bet no WorldCom exec will go to jail (or if they do, it will be one of those tennis prisons white collar crims get) and most of them are well-off enough to float for a while. But the employees lose everything. Just like Enron. Just like the staff at Arthur Andersen.

[ironman]

I think you read it wrong. I think they can pay severance, they just can't be "extraordinary payments", i.e., golden parachutes.

[Dog Gone]

They weren't going to be handed a check as they left the office for the final time, anyway. This is merely a way to make sure that no suspicious payments are made.

It's up to the court to decide whether to grant the injunction on these terms in any event. These workers will get their severance pay in due course, I'm quite sure.

[ironman]

I was thinking the same thing. I've used MCI for years for long distance and the service has been fine but it might be time to send a message and switch.

[habs4ever]

Bingo, its to prevent a golden parachute from imperiling the regular severance payments.

[DoughtyOne]

the Case of the Freeper FRiva Feva is under scrutiny - super-sleuths are welcomed
come resolve the way to yesterday's Target Post, you're not out of the running yet
win your registration fees to the FRive Las Vegas Conference if you dare

[SierraWasp]

I hope this isn't too far off the subject, but will somebody please offer an opinion as to why the 1 year charts I looked at for nearly every stock, or even every mutual fund took a huge drop after the market re-opened after 9-11... But Worldcom's DIDN'T!!!

What's up with that???

[11th Earl of Mar]

I think the key word is "extraordinary."

Remember Kmart execs getting multimillion dollar "loans" to keep them from leaving?

I think this is what the SEC is talking about.

[Orangedog]

Your title doesn't jive with the facts. The SEC is not prohibiting market-rate payments....they're prohibiting the 'Sweetheart' crap that WorldCom and other such companies are famous for...like the 400 million dollar loan the board gave the former CEO.

Friends of mine that work at Worldcom were told today by management that there would not be ANY severance paid. Their in house counsel is requesting the SEC to reconsider that part of their filing, but from the people I have talked to, no one will get any kind of severance. I know what they are trying to stop...the kind of crap the Ebers fleeced the shareholders for.

[OldFriend]

Be very careful when you switch away from MCI...they have a very bad habit of continuing to bill you even when you are no longer their customer. So BEWARE!!!

[SierraWasp]

Any speculative explanations??? I think it's weird!!!

[Orangedog]

I hope you're right, but from the people I have talked to, it doesn't look good for them. To say that they are worried about this would be a big understatement. I hate seeing people put out of work. Three years ago, it wouldn't have been a big deal, since anyone with telecom experience would have messages from at least three recruiters on their answering machines by the time they got home. Today, there just aren't any jobs to be had in this sector. A lot of us came to this business straight out of college or have been working in it forever, and don't have any experience in any other field.

The SEC is looking to make an example (rightfully so) out of any company that has "issues" with their reported earnings, past and present. The telecom that I work for is cooperating with the SEC on earnings from the past couple of years (if you follow the sector, you know which one I work for). More lay offs have already been planned where I work and If we have to re-state, we're afraid that we would get the same order on severance. Like I said, I hope you're right.

[SGCOS]

I'm employed by WorldCom and was told that ALL severance would be paid.

[fogarty]

Go ahead and switch to AT&T but don't invest in their stock. I think AT&T is going to have some 'creative accounting' items to answer for in the coming months as well.

There is no 'other shoe' - there are probably 6 or 7 other 'shoes' that are going to be dropping soon.

[Psycho_Bunny]

Their in-house counsel is being hyper-sensitive OR they're throwing up the "average worker" red herring to get the SEC to lift the prohibition so WorldCom CAN make the fleece payments. Either way that's WorldCom's problem. The SEC filing is pretty clear: regular, "Market-Normal" payments may be made. This is done all the time in Chapter 11's. WorldCom's attorneys should be familiar with this process.