Investigation and Litigation

Not surprisingly, WorldCom's lawyers will be busy in many investigations and lawsuits.

The Securities and Exchange Commission (SEC) has launched a high level investigation into WorldCom's accounting. It states that "accounting improprieties of unprecedented magnitude have been committed in the public market." The SEC has brought a civil charge of fraud against the officers. It is seeking an order to prevent WorldCom from selling assets, destroying documents and making payments to officers.

Prior to the accounting scandal, the SEC was investigating loans to WorldCom officers, customer service contracts, disputed sales and commissions.

New York officials moved this week to bring a shareholder lawsuit against WorldCom, some WorldCom officers and its former accounting firm, Arthur Andersen. Shareholders and employees will file suite about the loss of value in their stocks and retirement plans.

WorldCom's officers will also be a target for litigation. Another possible target will be Solomon Smith Barney, the financial consultant used by WorldCom and its employees

WorldCom can expect lawsuits from pension systems. Pension systems in Illinois and Alabama have already filed lawsuits after losing many millions of dollars by investing in WorldCom.

Shareholders are suing investment banks, claiming the banks poorly advised clients to invest in single stock, such as WorldCom

25 banks are suing WorldCom and have requested an immediate freeze on $2.65 billion of the company's assets. The lawsuit was filed in Manhattan's State Supreme Court. The judge denied the request and scheduled a hearing. A credit agreement between WorldCom and 26 banks was signed in July 2001. The company was to borrow, repay and borrow $2.65 billion within a year. The banks claim that 6 weeks before revealing the accounting disclosures, WorldCom told the lenders it was tapping into the entire amounts. The banks say that if they had known the true financial picture, they would not have extended the financing.