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On June 26, 2002, the U.S. Securities and Exchange Commission filed civil charges against WorldCom in the United States District Court for the Southern District of New York, alleging that the Company violated the anti-fraud and reporting requirements of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934. 

Specifically, the SEC alleged that WorldCom overstated its reported earnings by approximately $3.055 billion in 2001 and $797 million during the first quarter of 2002 through the use of undisclosed and improper accounting practices. 

The Commission requested that the Court: (i) permanently restrain and enjoin WorldCom from violating Sections 10(b) and 13(a) of the Exchange Act and the rules promulgated thereunder; (ii) impose civil monetary penalties on WorldCom pursuant to Section 21 of the Exchange Act; (iii) prohibit WorldCom and its affiliates, officers, directors, employees and agents from destroying, altering or removing from the Court’s jurisdiction any documents relevant to the matters alleged; (iv) prohibit WorldCom and its affiliates from making any extraordinary payments to any present or former officer, director or employee of WorldCom or its affiliates, including severance, bonus and indemnification payments; and (v) appoint a corporate monitor to ensure compliance with items (iii) and (iv). 

On July 3, 2002, the Court appointed Richard C. Breeden, former Chairman of the SEC, as corporate monitor of WorldCom.

WorldCom entered into a settlement of the SEC Action, and on July 7, 2003, the Court entered a Final Judgment as to Monetary Relief to implement the terms of the settlement. 

The Final Judgment ordered WorldCom to satisfy the monetary portion of the judgment obtained by the Commission by paying, upon the Company’s emergence from bankruptcy, $500 million in cash and shares of new common stock of MCI Inc., WorldCom’s successor in bankruptcy, valued at $250 million. 

The Court also ordered that the cash and stock be distributed to investor victims of WorldCom’s fraud, pursuant to the Fair Fund for Investors provision of the Sarbanes-Oxley Act of 2002, 15 U.S.C. §7246(a). 

On November 7, 2003, the Court appointed Richard C. Breeden as the Distribution Agent to oversee all aspects of the Fair Fund distribution of WorldCom’s payment of cash and transfer of shares of stock, pursuant to the terms of a Distribution Plan to be approved by the Court.   

On July 19, 2004, the Court approved the final Distribution Plan.