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MCI Creditors Are Target of SEC Subpoenas

By Christopher Stern
Washington Post Staff Writer
Saturday, September 18, 2004; Page E01

The Securities and Exchange Commission has subpoenaed 11 members of MCI Inc.'s former creditors committee for documents related to confidential communications between the company and its bondholders, according to federal bankruptcy court filings.

The subpoenas, according to a lawyer who has seen them, indicate that the SEC inquiry is focused on Blue River LLC, a New York-based investment firm that was a member of MCI's creditors committee during its recent bankruptcy reorganization. Blue River's founder, Van Greenfield, was co-chairman of the Ashburn-based telecommunications firm's unsecured creditors committee.

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Reached at his home yesterday, Greenfield declined to comment. MCI officials also declined to comment yesterday. The lawyer who described the subpoena and another source with knowledge of the inquiry spoke on the condition they not be identified because of the ongoing investigation.

MCI emerged from bankruptcy this year after filing for Chapter 11 protection in July 2002. The company, formerly known as WorldCom Inc., collapsed after revealing accounting irregularities totaling $11 billion. During the bankruptcy process, creditors effectively owned the company and were kept informed of its business prospects and were also included in major decisions.

Alistaire Bambach, the SEC's chief bankruptcy counsel, declined to comment on the inquiry. She said the agency regularly reviews all major bankruptcies. "In general, the staff of the commission is very concerned that creditors and security holders who sit on important committees don't violate their positions of trust," Bambach said.

The subpoenas direct creditors to reveal what they learned about the company's financial condition and when they learned it, according to filings by the former creditors in bankruptcy court.

As a condition of joining the creditors committee, bondholders agreed not to use confidential information to trade securities related to the telecommunications company, a common requirement in bankruptcy cases. WorldCom bondholders also faced strict rules about sharing information within their own firms. For example, if a member of the creditor's committee had a bond trading desk, it was required to prevent its bond traders from using any confidential bankruptcy-related information to their advantage.

The SEC investigation was revealed in documents filed with the U.S. Bankruptcy Court in New York and reported by the Reuters wire service earlier this week.

In the documents, several creditors asked the court to force MCI to pick up their costs for responding to the subpoenas, which they said would require a paper trail that was "voluminous and extensive consisting of thousands if not millions of pages."

Although MCI officially emerged from bankruptcy protection in April, the company is still settling several issues including outstanding payments to remaining creditors. MCI told the court in a filing Wednesday it should not have to pay.

In their filing, the creditors said the SEC is seeking documents dating to July 29, 2002, one week after the company filed for bankruptcy.

In addition to copies of confidentiality agreements, the SEC also requested all copies of communications between the company and the creditors committee and between the creditors committee and its financial advisers, consultants and accountants.

The SEC also sought all documents related to the financial condition and business prospects of the company, including "offers or expressions of interest to purchase all or part of WorldCom."

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