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Settlement Proposed by SEC in WorldCom Suit

The SEC filed a proposed settlement in its civil action against WorldCom Inc. in the U.S. District Court for the Southern District of New York. The proposed settlement is subject to the approval of both the district court hearing the Commission's fraud action and the bankruptcy court.

The proposed settlement would provide for a judgment in the Commission's action requiring WorldCom to pay a civil penalty of $1,510,000,000. As a result of the company's pending bankruptcy case, the proposed settlement provides for satisfaction of the Commission's judgment by WorldCom's payment, after review and approval of the terms of the settlement by the bankruptcy court, of $500,000,000. Under the terms of the proposed settlement, the funds paid by WorldCom in satisfaction of the Commission's judgment will be distributed to victims of the company's fraud, pursuant to the "fair fund" provision, Section 308, of the Sarbanes-Oxley Act of 2002.

The district court reserved decision on the settlement and issued an order requiring the parties to provide more information about a number of issues. The court desired to review the report by the bankruptcy examiner and the special investigative committee. The court also wanted to be informed on matters beyond monetary damages, including corporate governance reforms. More information on the impact of the Sarbanes-Oxley Act was also requested. Finally, the court sought detailed information concerning the mechanism for paying the funds to victims of the fraud.