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Wednesday, 27 November, 2002, 06:09 GMT
WorldCom reaches partial settlement
WorldCom graphic
Analysts doubt WorldCom's ability to survive bankruptcy
WorldCom and federal regulators have agreed a partial settlement over charges the telecoms firm concealed billions of dollars in expenses.

The deal includes a fine of an unspecified magnitude , and a continued government watch over the company.

WorldCom founder and former CEO Bernard Ebbers
WorldCom founder Bernie Ebbers resigned in April

Reaching the agreement boosts the chances of WorldCom successfully making it out of bankruptcy, experts said.

The scandal-ridden firm was accused of misleading investors by fraudulently concealing $9bn (5.8bn) in expenses.

Four WorldCom officials have already pleaded guilty for the part they played in mis-stating and hiding the expenses.

Delayed drop

US district judge Jed Rakoff said the settlement includes a permanent injunction to prevent further violations of security laws.

WorldCom has agreed to hire an outside consultancy group to review its accounting controls and provide staff training on accounting and ethics.

Its progress will be reviewed next year, and fines will be based on how it is judged to have kept its word.

The settlement could offer a pattern for future actions by the Securities and Exchange Commission against companies who break the rules.

But it also offers WorldCom a route back to normal life, said James Owers, professor of finance at Robinson College of Business at Georgia State University in Atlanta.

"All those questions (about WorldCom's viability) will be eased in terms of the employees who work there, but probably and most critically for clients' potential to do business" with the firm, he told Reuters.

"This is a major clearing of the stage."

Bankrupt firm

When WorldCom announced $4bn in financial mis-statements in late June, it shocked a financial market already buffeted by the revelations of accounting irregularities at Enron.

At that time, the firm reported "accounting irregularities" which overvalued its profits by $3.8bn and made it look profitable when it was in fact making a loss.

Two months later, the group revealed a further $3.3bn of improperly reported earnings.

WorldCom, which is now in Chapter 11 bankruptcy, has reported further losses and asked for more time to come up with a reorganisation plan.

The company also warned when it emerges from bankruptcy proceedings next year, its shares could have little or no value.

It recently said it would be March 2003 at the earliest before it could emerge from bankruptcy.

Ebbers' role

The firm's former chief executive, Bernie Ebbers, resigned in April prior to the fraud being uncovered, in part because of his $408m in loans from the company.

He is accused of taking the loans to build his own home and give loans to relatives.

Earlier this month, it was reported Mr Ebbers may relinquish some or all of his $1.5m annual pension to help settle the loan.

The BBC's Richard Scott
"What is yet to be decided is the size of the fine"
Professor Knoll, telecoms expert
"The government doesn't want to force a bankruptcy."

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