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Judge Says MCI Broke Pay Rule

Professional Fees Lacked Approval

By Yuki Noguchi
Washington Post Staff Writer
Thursday, November 25, 2004; Page E02

A federal judge yesterday threatened sanctions against MCI Inc. for apparently violating a court order requiring approval of expenditures for lawyers and consultants while it was in bankruptcy protection.

U.S. District Judge Jed S. Rakoff said MCI paid, or was billed for, about $25 million in unapproved professional expenses from lawyers, consultants and accountants. He said those payments were not signed off on by a court-appointed monitor, in apparent violation of rules set by Rakoff last year. Before making payments, MCI was required to seek approval from its monitor and the bankruptcy court.

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Keeping Internet Phone Service Simple (The Washington Post, Nov 8, 2004)
Third-Quarter Loss $3.4 Billion for MCI (The Washington Post, Nov 5, 2004)
Citigroup Liable In WorldCom Worker's Loss (The Washington Post, Nov 4, 2004)
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The judge yesterday barred the third-largest long-distance company and its employees from making further bankruptcy-related payments until it explains the unauthorized payments. The Ashburn company must respond to the order by Dec. 6. The judge said he may approve the disputed fees if he finds them justified and if there is a legitimate reason the company did not get the monitor's approval.

The amount in dispute represents only a small fraction of more than $800 million the company spent in lawyers' and other fees during its 21-month bankruptcy process.

MCI spokesman Peter Lucht declined to comment on the ruling.

MCI, which changed its name from WorldCom Inc. after emerging from bankruptcy proceedings in April, filed for bankruptcy protection in 2002 after admitting to accounting fraud. The company's fraud totaled $11 billion, and it settled its case with the Securities and Exchange Commission for $750 million.

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