WorldCom Victims Vie to Cut Losses
As the Ashburn, Va., telecom carrier tries to emerge from bankruptcy with a greatly reduced debt load, everyone associated with the company wants to cut its losses. Competitors, arguing they lost contract opportunities because they couldnt beat low bids that were propped up through fraud, have suggested that WorldCom should be liquidated.
William Barr, executive vice president and general counsel at Verizon Communications Inc., in Washington, D.C., told the Senate Judiciary Committee Tuesday that the problem is that government enforcement authorities abdicated their responsibilities regarding WorldCom.
The government is "stumbling all over itself to meet MCIs timeline and preferences as to how it wants to emerge from bankruptcy," Barr charged, adding that if the company reorganizes as planned, its debt-to-sales ratio would be the lowest in the industry. "Its being put in an extremely advantageous position in the sector."
In the eyes of competitors, the government has added insult to injury since the fraud became known by continuing to sign massive new contracts with WorldCom, including a $45 million deal to operate in post-war Iraq.
"They have left this company with virtually all of the fruits of the crime intact. Theyve radically expanded MCIs business with the government in the months since the fraud came to light," Barr said. "We are the obvious victims of the fraud."
WorldCom representatives argue that the corruption was the product of a couple bad actors, who are no longer part of the company, and that the remaining employees and creditors should not be punished. "All of these people are victims of the fraud, not perpetrators," said Nicholas Katzenbach, a former U.S. attorney general who joined WorldComs board of directors in July 2002. "What [competitors] seek is to inflict more pain on MCI and if possible destroy the company."
Katzenbach said he believes that the call for liquidation is "simply a ploy to reduce competition," and the companys bankruptcy lawyer, Marcia Goldstein, with the firm of Weil Gotshal & Manges LLP in New York, said Verizon wants to bid for WorldComs assets at a depressed value.
"The ill-gotten gain was the money taken from creditors, not from competitors," Goldstein said. "The problem here is that the company is in part the victim."
To union representatives, the victims include not only current and ex-WorldCom employees but also laid-off workers throughout the entire telecommunications sector.
"WorldComs lies and false financial reports destabilized the entire telecommunications industry," said Morton Bahr, president of Communications Workers of America in Washington, D.C. "The victims of WorldComs crimes are legion."
According to Bahr, AT&T Corp. eliminated 18,000 jobs over the period in which WorldCom executives committed fraud. "WorldCom could lowball the bid, get the contract and cover the contract by cooking the books," he said. "No company, including Enron, has done as much damage to the American economy."
Katzenbach defended the company, maintaining that the executives committing fraud were "acting for their own benefit," driven by the desire for money and "the enormous ego trip they were on."
Upon convening the hearing Tuesday, Senate Judiciary Committee Chairman Orrin Hatch, R-Utah, said members of Congress want to determine whether there are lessons to be learned from the WorldCom fiasco and whether any changes in bankruptcy laws are in order.