Additional Information for Investors Regarding the Potential Distribution of the SEC's Civil Penalty Judgment Against WorldCom, Inc. in the SEC v. WorldCom Case
Background of the SEC's WorldCom Litigation
The SEC filed its initial Complaint in this matter on June 26, 2002, one day after WorldCom, Inc. (a predecessor company to MCI, Inc., which merged with Verizon Communications Inc. in January 2006) announced its intention to make a major restatement of its previously reported income. The SEC's complaint charged that WorldCom had inflated its income by approximately $3.8 billion through an unlawful scheme, and sought the appointment of a corporate monitor for WorldCom, injunctive relief, and a civil monetary penalty. The SEC's case was assigned to the Honorable Jed S. Rakoff of the United States District Court for the Southern District of New York.
On July 3, 2002, Judge Rakoff appointed former SEC Chairman Richard Breeden as WorldCom's Corporate Monitor.
On July 21, 2002, WorldCom filed for reorganization in bankruptcy pursuant to Chapter 11 of the Bankruptcy Code. WorldCom's bankruptcy proceeding was assigned to the Honorable Arthur J. Gonzalez of the United States Bankruptcy Court for the Southern District of New York.
On November 1, 2002, the SEC amended its complaint against WorldCom to allege additional violations of the federal securities laws, broaden the time period for those violations back to 1999, and recognize WorldCom's acknowledgment that its improper overstatement of income amounted to approximately $9 billion during the period covered by the SEC's charges. Additional information concerning the amended complaint is available on this website.
On November 26, 2002, Judge Rakoff entered a Judgment of Permanent Injunction, partially resolving the SEC's case against WorldCom. That judgment imposed all of the equitable relief the SEC sought against WorldCom, as well as additional equitable relief. Further information about this judgment is available on this website.
The Final Judgment as to Monetary Relief
On July 7, 2003, Judge Rakoff approved the proposed settlement of the SEC's claim for a civil penalty against defendant WorldCom, and entered a Final Judgment as to Monetary Relief. Judge Rakoff's Opinion and Order approving the settlement is available on this website.
The Final Judgment as to Monetary Relief provided that WorldCom was liable for a civil penalty in the amount of $2,250,000,000. It also provided that the company's obligation could be satisfied by its payment of $500,000,000 in cash and by its transfer of 10 million shares of common stock in the reorganized company.
On August 6, 2003, Judge Gonzalez issued an order approving WorldCom's settlement with the SEC. Subsequently, on October 31, 2003, Judge Gonzalez issued an order approving a plan of reorganization for WorldCom.
The company, reorganized as MCI, Inc., satisfied the Final Judgment as to Monetary Relief and emerged from bankruptcy in April 2004. On July 19, 2004, the Court approved the SEC's plan for distributing the fund. That plan provided for the distribution of the proceeds of the funds paid and stock transferred by WorldCom to satisfy the civil penalty judgment to investor victims, pursuant to section 308 (Fair Funds for Investors) of the Sarbanes-Oxley Act of 2002. Further information about the terms of the settlement is available on this website.
The Court appointed former SEC Chairman Richard C. Breeden as Distribution Agent to oversee the distribution of the proceeds of the civil penalty judgment. Further information about the Court's appointment of the Distribution Agent is available on this website.
Please note that the Distribution Agent, not the SEC, is managing the distribution process. Complete information about the distribution process is available on the Distribution Agent's website, www.worldcomvictimtrust.com. Information on the claims process may also be obtained by calling the Distribution Agent's toll free hotline telephone number, 866-894-8871.
Investors who have further questions concerning these matters may contact Jack McCreery in the SEC's Office of Investor Education and Assistance, at (202) 551-6311 or firstname.lastname@example.org.