Why Is Oklahoma Suing WorldCom?

from the cross-purposes dept

I’ve been reading articles all day today about the supposedly “big news” about Oklahoma filing criminal charges against former WorldCom execs including Bernie Ebbers and “WorldCom” itself. The press really has been having a field day with this, and I’ve started writing up about four different posts, each time stopping before I was done. Something about the case was bothering me, and I finally realized what it was. Why Oklahoma? Why is Oklahoma filing this lawsuit and not the federal government, who has already been investigating the case, and has already filed lawsuits against many of the same individuals. It appears that the Department of Justice is similarly confused. Basically, the rationale appears to be that Oklahoma’s attorney general feels WorldCom and its execs got off too lightly. That may be true, but it seems that a series of separate legal cases involving WorldCom are only going to confuse matters at this point.

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Comments on “Why Is Oklahoma Suing WorldCom?”

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Munich says:

Exactly My Thoughts

We’re on the same wavelenth on this one. Why Oklahoma of all places? Can all 50 states bring charges? What about counties? Cities? What about the federal trial that is pending?

Essentially some grandstanding by the OK AG, probably looking for some payola for the state coffers (following NY AG in securities), although I have no clue if that will work with a bankrupt company. Maybe the feds will talk him into dropping it until at least after the federal phase is complete. If he pursues, it will be in the courts for years, so I don’t know what he thinks he will accomplish.

August Jackson (user link) says:

Perhaps if the Feds had taken some action...

While I may or may not disagree that state AGs are doing some grandstanding with the latest corporate scandals (read: New York and now Oklahoma), I have to say that I’m not really surprised one state AG has taken this stance against WorldCom.

The sad fact is that the federal government have been COMPLETELY lax on their prosecution of both the company and the masterminds of their fraud. The DoJ have failed to indict former CEO Bernie Ebbers or the company itself. Recent allegations of additional and endemic fraud clearly indicate the criminal activity at WorldCom ran very deep within the company. A paltry $750 settlement with the SEC falls short of the financial burden that should be placed on the company to mitigate the years of fraud that have taken place. Add to this the fact that WorldCom (now MCI) continued to win government contracts (such as the wireless network in Baghdad), and one can see the frustration with which the Oklahoma AG is dealing.

Sorry for the long, complicated and likely run-on sentences. Suffice it to say there are many valid reasons a state AG would feel the Feds have dropped the ball. Because, clearly and surely they have. As a result of the mamby-pamby federal prosecution MCI were set to emerge from bankruptcy fully better off for the fraud that had been committed by WorldCom over the years.

Munich says:

Re: Perhaps if the Feds had taken some action...

I understand and even agree to what you are saying, but here are my thoughts:

1. The feds have stated they are not done with their investigation, which is why they are pissed off at the OK AG now. I think your beef should be that the Feds haven’t acted YET.

I think the feds want to have a gazillion documents and have this thing with in a package with a big bow around it before taking any action since loosing a trial would be a major embarrassment. They also aren’t done with Enron, which is, what, two years ago now.

2. There is a fairness issue here. Even if you hate them, how many times does the “government” get a shot at you. You don’t like the outcome in federal court? Do it in OK. Don’t like the result there, you have 49 more chances. Don’t like the result there? Take it to some county or city jurisdiction. This might be okay with MCI, but could lead to abuses in other cases.

There is a reason we have a “double jeopardy” clause, although I think the courts have been pretty lax in allowing officials to take to state courts items that have failed in federal courts.

3. How do you punish a company and how bad do you do it? The AG took action against the executives, fine, but also against MCI as a corporation. How do you punish a company? Put it out of business and put all the workers (who didn’t do anything) out of work? Force it to sell out to a competitor, consolidating the industry? Pay a hefty fine, which won’t affect the executives, but sure as hell will affect the employees and stock/bond holders. It isn’t an easy question.

Agust Jackson (user link) says:

Re: Re: Perhaps if the Feds had taken some action...

If I may respond to each of your points:

1) I’ll concede the point to a certain extent that the Fed simply had not done anything YET. However, an outside observer has to be given some leeway for concluding that the SEC’s settlement with WorldCom is an indication that the Fed is basically finished with their investigation. If this investigation were truly rigorous and on-going the SEC would be nowhere near the settlement stage yet. Likewise, one has to ask if the SEC consulted with the state securities regulators before entering into those settlement negotiations. Based on the recent suits filed by Oklahoma and other states I think it is somewhat safe to conclude that the answer is “No” or at the very, very least “Not to their satisfaction.” Also, while I recognize that the Federal government is not a monolith, the fact that WorldCom continued to win government contracts (even uncontested ones for which they were wholly unqualified) is an indication that the Federal government was failing in its investigation of the company. My hope is that the action taken by the Oklahoma AG and those in other states will be the kick in the pants the DoJ evidently needs to take some action.

2. The spectre of double jeaopardy in this case is something of a canard thrown out by the defendants in this action. If WorldCom and its exeucitves violated specific securities laws in affect in Oklahoma, I fail to see how a pending Federal case can stop the Oklahoma AG from taking action. I cannot see that Federal permission should be required before a state can take action. Alternatively, I don’t see that a lack of Federal prosecution is somehow justification for impunity from action in lower jurisdictions, which is something that at least Mr. Ebbers’ lawyers have claimed.

3. As for the question of how to punish a company whose executives have engaged in such wrong-doing, this is a valid issue in which many interests must be weighed. The fact of the matter is that MCI, when they emerge from bankruptcy, will have been better off materially and financially for WorldCom’s fraud. As someone who works for a competitor, I take significant umbridge at this. WorldCom’s financial shenanigans allowed them to engage in pricing behavious that caused financial injury to my employer (for whom i am NOT a spokesperson) and other service providers in our industry. If nothing else the restructured MCI should have a sufficient financial burden placed upon it that will mitigate that element of their history as well as strict government oversight in their operations.

Employees of all companies have an interest in seeing MCI pay a substantial penalty as well. One of the ways WorldCom and Arthur Andersen got away with their fraud is that executives and managers placed pressure on individual employees to engage in practices that they knew were wrong and illegal. A strong punishment against the executives of WorldCom and the company itself will send a message to executives in all industries not to engage in such activity. Likewise, individual employees will have a strong example that provides them a model for how to react if an executive is pressuring them to do something illegal. The fact that lots of line employees lost their jobs and their personal fortunes at companies like WorldCom and Enron is certainly unfortunate and an imbalance of justice (at least in the cosmic sense), but these instances provide a lesson to make the choice to do the right thing.

James Y. Wilson says:

Re: Re: Re: Perhaps if the Feds had taken some action...

Does anyone know if these so called “executives” are criminally liable for their actions? I hear so much about how the company itself should be penalized, but I can think of no better way to send a message to future executives then to remind them that they cannot hide behind the corporate veil, and that jail time is a possible consequence of their actions.

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