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WorldCom Wins Approval for $750 Million Settlement

Bankrupt WorldCom Inc. closed a chapter in its historic fall from grace by winning approval from a bankruptcy judge to settle civil fraud charges and pay a record $750 million fine.

The No. 2 U.S. long-distance telephone carrier agreed to pay $500 million in cash and $250 million in stock to settle Securities and Exchange Commission fraud charges, clearing a major hurdle for the carrier to emerge from bankruptcy protection.

The $750 million will go to bondholders and shareholders who lost more than $200 billion through WorldCom's downfall.

The company hopes to put the $11 billion accounting scandal behind IT and get a Sept. 8 hearing to confirm its reorganization plan. Once it emerges from bankruptcy it plans to change its name to MCI.

WorldCom, also one of the biggest movers of Internet traffic, admitted in June 2002 it improperly recorded billions of dollars of expenses, errors that eventually pushed it to file the largest bankruptcy in U.S. history.

“It represents additional validation of all the positive steps the company has taken over the past year to both put its house in order and establish itself as a leader in good corporate governance,'' WorldCom's new general counsel Stasia Kelly said in a statement.

But a couple new wrinkles have emerged that could complicate the company's future; a suspension from receiving new government contracts until its financial house is in order and charges by rival phone companies about improperly routing calls.

AT&T Corp. submitted to the bankruptcy court on Wednesday new documents to support its claims that WorldCom improperly rerouted and hid details of calls to avoid expensive connection fees, allegations now under investigation by federal prosecutors and regulators.

AT&T, the biggest long-distance carrier, submitted call records to the courts purportedly showing calls from United Airlines, Wells Fargo and the Defense Department that were routed by WorldCom through Canada onto AT&T's network.

WorldCom denied any wrongdoing and said it was merely finding the cheapest way to route calls. The company said it does not route call traffic through Canada.

WorldCom, like many telephone companies, contracts with other network operators to transmit some traffic. But once it hands off the traffic, it does not dictate the path or direction that the calls later flow. Routing calls to other service providers to reduce costs is not illegal.

AT&T, however, plans to submit further evidence to prove that WorldCom diverted traffic with the intent to harm AT&T, sources familiar with the situation.

“We're talking about the difference between shopping for bargains and shopping with somebody else's credit card,'' AT&T Chief Counsel James Cicconi said in a statement.

AT&T has asked the bankruptcy court for permission to sue WorldCom for damages for its claims and seek a hearing in federal court.

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