Ever since the extent of WorldCom's accounting fraud was revealed a year ago, many of its competitors have battled its attempt to reemerge from bankruptcy. Now there's a possibility those efforts may pay off, thanks to still more alleged wrongdoing by the long-distance provider.
A new Justice Department investigation is looking into complaints that WorldCom -- which is changing its name to match the moniker of its MCI long-distance unit -- has been rerouting calls to avoid charges from local phone companies, and even dumping some calls onto competitors' networks so they will have to pay the charges. Such a tactic is known as "laundering" calls, and it allegedly affected Verizon Communications
The new allegations come at the wrong time for the troubled company, which has a court hearing in about a month to determine whether it can emerge from bankruptcy. There are signs it may face tough opposition on other fronts, as well. It has continued to receive government contracts over the past year, but "it's critically important ... to be shutting the door to entities that pervasively commit misdeeds," Rep. John Sweeney (R-N.Y.) told the Associated Press.
It's not hard to see why competitors are crying foul; as Bill Mann (TMF Otter) said, why should a company be able to "run up debt, build a network, pay itself millions, go into Chapter 11, emerge on the other side, and grant the management team stock options so they can participate in the company's further 'success'"?
By some estimates, the alleged laundering scheme may have involved hundreds of millions of dollars over a nine-year period. If true, the bankruptcy proceedings would be thrown into disarray and critics and competitors might get their wish and see this company -- which got off with just a $750 million fine for its previous transgressions -- liquidated.