“Company let off the hook with little punishment,” says Schatz

(Washington, D.C.) — Citizens Against Government Waste (CAGW) today reacted with great dismay at the breaking news that Judge Jed Rakoff approved the settlement between the Securities and Exchange Commission (SEC) and MCI/WorldCom.  The agreement is for a $750 million fine, $250 million of which is in stock.

“It is disappointing that the company that commits the greatest fraud in American history, $11 billion, leading to a loss of $180 billion to the retirement accounts and savings of thousands of people receives only a slap on the wrist,” CAGW President Tom Schatz said.  “This decision sends the message that corporate crime does pay.  As Judge Rakoff noted, while the company’s 50,000 employees deserve protection, so do taxpayers and investors.  This fine is not sufficient to act as a deterrent to future corporate corruption.”

Today’s decision may also affect an ongoing investigation by the General Services Administration (GSA) as to whether or not MCI should continue to receive government contracts.  While GSA took swift action to debar, or suspend, both Enron and Arthur Andersen from government contracts, the agency failed to do so when MCI went bankrupt and its executives were accused of fraud.  CAGW has maintained since last November that consistent application of the federal acquisition regulations would lead to the same result for all three companies, and that the decision to continue doing business with MCI was not appropriate.  Senator Susan Collins (R-Maine), Chairman of the Governmental Affairs Committee, has also urged GSA to conduct a thorough review of whether the company should continue to receive government contracts.  As a result, last week GSA announced that it would begin proceedings to determine whether or not to suspend or debar MCI.

“One can only hope that the GSA review of federal contracts with MCI/WorldCom has a more lasting impact on the company than today’s decision,” said Schatz.  “Cutting off the hidden taxpayer bailout of MCI/WorldCom will not put the company out of business, but it will open up more contracts to competition and demonstrate that GSA and other agencies will operate in a consistent manner in dealing with fraudulent businesses.  A company cannot be judged by contract performance alone; it must also possess the highest business ethics and integrity.”

Since announcing its bankruptcy, MCI/WorldCom has received more than $1.2 billion in federal contracts, more than offsetting the approved fine.  In addition, MCI/WorldCom is attempting to take advantage of a tax loophole that could allow the company to avoid more than $3 billion in taxes, and is seeking a refund from the Internal Revenue Service of taxes it paid when it overstated its income.  Sen. Rick Santorum (R-Pa.) has introduced legislation to eliminate the tax loophole before the company emerges from bankruptcy, preventing the loss of $3 billion to taxpayers.

“Sen. Santorum and Sen. Collins are taking steps to impose a substantial penalty on MCI/WorldCom and ensure the company plays by the rules to do business with the federal government,” Schatz concluded.  “Corporate misdeeds can be punished without imposing a ‘corporate death penalty,’ while also protecting investors and taxpayers.  Today’s ruling failed to do so.”

Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, mismanagement and abuse in government.