Washington, July 03: Shareholders and bondholders who lost money in WorldCom Inc would receive $250 million of common stock in the reorganized company, according to a sweetened settlement the telecommunications company and the Securities and Exchange Commission (SEC) filed on Wednesday. WorldCom, which entered bankruptcy protection last summer after being enveloped in an $11 billion fraud scandal, will provide the stock in addition to the record $500 million fine it has already agreed to pay to settle SEC fraud charges.


"The supplemental relief, if approved, would allow victims of the fraud to share in the potential upside of owning WorldCom common stock when it emerges from bankruptcy," the SEC said in a statement.



The stock would be distributed by an agent appointed by a federal district court, according to the securities regulator. Both the bankruptcy court overseeing WorldCom's reorganization and the federal court handling the civil fraud charges against the company would have to approve the sweetened settlement.


The $500 million fine would also be distributed to the victims of the fraud. The rest of the settlement terms with the SEC would remain the same, according to the agency.

WorldCom, the No 2 US long-distance telephone carrier and one of the biggest movers of Internet data, admitted that it had improperly recorded almost $4 billion in expenses as capital spending in June 2002. The SEC immediately filed fraud charges against the company.


That number eventually ballooned to about $11 billion.


The monetary fine was initially set at $1.5 billion, but was cut to $500 million because the company is in bankruptcy. WorldCom plans to change its name back to MCI after it emerges from bankruptcy protection later this year.

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"Today's settlement reflects an additional contribution of $250 million in common stock that will allow shareholders and bondholders to participate in the future success of the company," Bob Blakely, WorldCom's chief financial officer, said in a statement.


Resolving the SEC charges would remove a big legal cloud over WorldCom, which filed for bankruptcy in July after being rocked by the accounting scandal and amassing some $41 billion in debt. The Ashburn, Virginia-based company also faces lawsuits from shareholders whose stock has become worthless.

WorldCom had already agreed with the SEC not to violate securities laws in the future and train its officers to avoid doing so. The company also would be barred from seeking insurance coverage for the penalty.


The size of the SEC penalty would eclipse the $400 million that Citigroup's Salomon Smith Barney investment banking unit agreed to pay last month as part a $1.4 billion settlement with Wall Street firms over biased analyst research.
Bureau Report