MCI Inc. sued its former chief executive Bernard J. Ebbers yesterday, seeking about $340 million in outstanding personal loans still owed to the company.
In the lawsuit, filed in a federal bankruptcy court in New York, MCI claims that Ebbers has paid only $70 million of the $408.2 million he borrowed from the company to cover margin calls on his company stock.
Until yesterday, Ebbers had been able to hold off MCI's demands for repayment by allowing the Ashburn-based telecommunications giant to sell off some of his holdings, including a yacht-building business in Georgia and a ranch in Canada. Those sales yielded the $70 million in payments.
"This action reflects MCI's obligation to its shareholders to receive as much of the money owed as possible," said company spokeswoman Brittany Hoff.
However, it is not clear what assets Ebbers has left for the company to recover. The former executive has been charged with federal securities fraud related to the company's $11 billion accounting fraud. Ebbers is scheduled to go on trial in New York in November.
Calls to Ebbers's attorney's office were not returned.
The lawsuit was filed in the same federal bankruptcy court in New York that handled MCI's Chapter 11 case. Although MCI emerged from bankruptcy protection earlier this year, the court continues to handle several matters related to the company. MCI was formerly known as WorldCom, but changed its named when it completed the bankruptcy process.
The lawsuit filed by MCI is a response to a filing by Ebbers seeking to reinstate his severance agreement dating from April 2002, when he resigned from the company. MCI has refused to honor the agreement, arguing that Ebbers had failed to hold his end of the deal by defaulting on his loans.
Under terms of the deal, Ebbers was required to pay back over five years the $408 million he owed the company, beginning with a $25 million payment due on April 29, 2003. Another $25 million payment was due in April of this year, which Ebbers also failed to pay, according to MCI's lawsuit. A payment of $75 million is due next year, $100 million in 2006 and the balance in 2007.
The agreement called on MCI to pay Ebbers $1.5 million for life and his wife $750,000 after his death. He was also granted lifetime medical benefits and limited use of the corporate jets.
Ebbers incurred most of the debt between 1995 and 2000 as he began to buy up businesses and property, using MCI stock as collateral. But as the company's share price began to fall, banks grew nervous and began demanding repayment of their loans. Rather than sell his stock, Ebbers borrowed directly from the company to pay his personal debts.