State Benefits From WorldCom Charges
Jul. 15–State Attorney General Drew Edmondson’s handling of the WorldCom case ranks with those of attorneys generals in New York and Massachusetts who filed securities fraud charges that irked federal authorities but eventually benefited investors, a corporate law professor said Thursday.
“The feds take the attitude that we’re not going to charge the corporation itself with committing a crime because that just punishes the shareholders,” said Norwood Beveridge, securities law professor at Oklahoma City University. “I think that’s a dubious proposition.”
Federal prosecutors were among Edmondson’s harshest critics after he charged WorldCom and six former executives with violating Oklahoma’s securities laws in August 2003.
“I realize that it bent a lot of people out of shape, and a bill was introduced in Congress to pre-empt state prosecution of federal securities crimes as a result of that, but it never got off the ground,” Beveridge said. “Personally, I think the dual state-federal jurisdiction that we have has justified itself over the past century, and I think it should continue.”
While former WorldCom investors wait to see what — if anything — they’ll receive from civil lawsuits and bankruptcy settlements, the state of Oklahoma already has cashed a check.
Oklahoma was the only entity that charged the corporation with criminal securities fraud, and the company, now called MCI Inc., signed a deferred prosecution agreement with the state that promised the creation of 1,600 jobs in Oklahoma.
The company agreed to pay penalties of up to $15.4 million if it doesn’t create any local jobs and paid the state $280,000 because its Oklahoma work force failed to grow last year. Those annual payments will increase by $280,000 each of the next nine years if the company fails to add sufficient jobs.
The company has said that it still hopes to fulfill its job creation pledge.
However, Beveridge was not impressed with the size of Oklahoma’s settlement.
“For MCI, that’s just the cost of doing business,” he said.
Edmondson said restitution wasn’t the main reason he charged the company with violating state securities laws.
“My motivation first and foremost was that they violated Oklahoma law,” Edmondson said Thursday. “Secondly, I wanted some kind of recovery for the state of Oklahoma and didn’t see much chance of getting that in the bankruptcy court. Thirdly, I thought the sanctions imposed against WorldCom by the SEC were woefully inadequate.”
Since no other state followed Oklahoma’s lead in charging the company with a crime, negotiations on the deferred prosecution agreement went smoothly.
“It’s much easier to work out a settlement that’s Oklahoma-specific than to try to work out some kind of global settlement,” Edmondson said. “They can’t put 1,600 jobs in every state.”
Meanwhile, the state’s criminal case will have no effect on its standing in bankruptcy court. But Edmondson, like many who represent former WorldCom investors, has limited expectations about collecting significant amounts of money. State pension funds lost $64 million invested in WorldCom.
Major investment banks that underwrote WorldCom securities, auditing firm Arthur Andersen and 12 former WorldCom board members have reached settlements on civil lawsuits filed by former investors. They have agreed to pay more than $6 billion as part of the agreement.
Oklahoma’s criminal charge against Bernie Ebbers, the former WorldCom chief executive officer, preceded the federal government’s case by more than six months. Edmondson later deferred his prosecution at the request of federal authorities.
The state now plans to drop its case against Ebbers, who was sentenced Wednesday to a 25-year federal prison term. It’s likely that the five other defendants will never be tried in Oklahoma, in lieu of whatever penalties they receive in federal court, Edmondson said.
Beveridge said the WorldCom saga is one of a string of examples that demonstrate there are always unscrupulous characters willing to misbehave for the opportunity to grab large amounts of cash.
“We’ve had some outrageous securities frauds and to make a horrible example of these people is a deterrent to others who might be tempted to stray,” Beveridge said.
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