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AT&T accuses WorldCom of racketeering ; RICO suit claims rival committed fraud in routing calls

Posted on: Wednesday, 3 September 2003, 06:00 CDT

AT&T Corp., opening a second front in its war to derail rival WorldCom Inc.'s plan for emerging from bankruptcy, has filed a civil racketeering suit accusing WorldCom of fraudulently routing telephone calls to avoid connection charges.

In a lawsuit in U.S. District Court for the Eastern District of Virginia, the largest U.S. long-distance phone company charged that WorldCom and Onvoy Inc., a Minneapolis-based carrier, saddled AT&T with fees for completing calls on local phone companies' networks by routing them through Canada.

The fees, AT&T says, should have been paid by WorldCom.

WorldCom competitors, including Verizon Communications Inc., are stepping up pressure on the company, which they say isn't being adequately punished for an $11 billion accounting fraud. Ashburn, Va.-based WorldCom, which is changing its name to MCI, will seek approval at a hearing Monday of a plan to emerge from the biggest U.S. bankruptcy with most of its debt eliminated.

"Companies like AT&T and Verizon are trying to cripple MCI in any way they can," said University of Pennsylvania law professor David Skeel. "It's potentially a very large problem for WorldCom" which may derail the company's plans to exit bankruptcy as early as next month, he said.

AT&T claims that WorldCom, Onvoy, and other companies improperly saddled AT&T with "tens of millions of dollars" in fees for completing long-distance calls on local carriers' networks by routing them through Canada. AT&T first raised the complaints in July. The suit alleges improper call routing after WorldCom's July 2002 Chapter 11 filing.

"This is nothing more than AT&T trying to make headlines from something that is at best a commercial dispute," said Claire Hassett, a spokeswoman for WorldCom. An internal review has found the company didn't have improper dealings with Onvoy, she said.

AT&T also accused WorldCom of mail and wire fraud and seeks unspecified damages.

WorldCom, which is slashing debt to about $5 billion from $41 billion through the bankruptcy process, will continue to cooperate with a criminal probe into the allegations by the Justice Department that began in July, Hassett said.

Onvoy called the fraud allegations false.

"We anticipated this type of maneuver out of AT&T this week prior to MCI's bankruptcy hearings," Onvoy Chief Executive Officer Janice Aune said. "AT&T probably has more attorneys than we have employees and they can afford to tie this thing up in court as long as possible." Onvoy has denied wrongdoing.

WorldCom's main bonds were unchanged at about 30 cents on the dollar. Holders of the notes are to get 36 cents when WorldCom exits bankruptcy.

AT&T's suit accuses the company of violating the federal Racketeering Influenced and Corrupt Organization Act and other laws. RICO was originally an anti-organized-crime law that was extended by the courts to include corporate activity.

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