WorldCom Inc. reached an initial settlement with the Securities and Exchange Commission yesterday that requires the company to submit to continued federal oversight but leaves open the question of whether it will be fined after reporting more than $9 billion in accounting irregularities.

The deal is a major step in WorldCom's effort to emerge from bankruptcy after a bookkeeping scandal threatened to send the nation's second-largest long-distance telephone company the way of Enron Corp. and Arthur Andersen LLP. It was reached less than two weeks after WorldCom hired former Compaq Computer Corp. chief executive Michael D. Capellas as its chairman, chief executive and president.

U.S. District Judge Jed S. Rakoff approved the deal at a hearing in New York. He said he was satisfied that the company took responsibility for rooting out fraud.

"I think this shows that the company has made laudable progress in moving towards a much more positive position and a correction of past mistakes," Rakoff said.

Peter H. Bresnan, deputy chief litigation counsel for the SEC, said fines would depend on WorldCom's continued cooperation with federal investigators and the outcome of other investigations of the company.

WorldCom admitted no wrongdoing, and the settlement does not stop criminal investigations involving the company. But after spending the past five months being battered by accounting scandal, WorldCom officials hope they have reached a turning point.

"This settlement is a significant milestone in WorldCom's restructuring efforts," said John W. Sidgmore, WorldCom's outgoing president and chief executive. Under the terms of the deal, WorldCom agreed to hire an outside consultant to review its accounting practices, and its executives agreed to undergo training in business ethics. More important, former SEC chairman Richard C. Breeden, a corporate monitor appointed by Rakoff, will have an expanded role at the company. Breeden already attends board meetings and reviews major business decisions.

The settlement specifically requires Breeden to review WorldCom's internal investigation into the circumstances that led to the accounting scandal. Using the report as a foundation, Breeden is charged with evaluating WorldCom's corporate structure to ensure that the company does not repeat illegal activities.

"The idea is a no-holds-barred review of the company board and all of its committees," Breeden said after yesterday's hearing.

The SEC's decision to settle the case before investigations are complete was unusual, but officials indicated they were motivated in part by WorldCom's function as a telephone and Internet service provider.

"Why wait? They've been cooperative," said William R. Baker III, associate director of the SEC's enforcement division. "It's novel, but it's a situation where we have the circumstances that warrant it. . . . We would not have wanted to do anything that would have discontinued phone service," he added.

Baker made it clear, however, that the SEC does not consider its work done. "We're not in a position to give them a clean bill of health yet," he said.

Lawyers familiar with SEC enforcement note that the agency usually doesn't seek fines in accounting cases involving public companies, as long as management cooperates fully. The commission in the past has assumed that a monetary punishment would simply inflict more damage on shareholders, who were victimized by fraud in the first place.

A former federal prosecutor called the settlement a tremendous break for WorldCom and a reward for the company's decision to work closely with the SEC.

"WorldCom's had a very good day," said Thomas F. Carlucci, who is now a partner at Foley & Lardner in San Francisco. "Compare WorldCom with Arthur Andersen. Somebody made a good decision and somebody made a bad decision." Andersen was found guilty of obstruction of justice after the SEC brought a criminal case against the company on charges of covering up its work for Enron.

Although the Justice Department continues to investigate WorldCom, it rarely files criminal fraud charges against a corporation after the SEC reaches a settlement, Carlucci said. But individual officers and directors still may face indictment.

Four WorldCom executives have pleaded guilty to criminal fraud charges, and two of them have settled with the SEC, delaying fines until federal officials assess their level of cooperation.

Scott D. Sullivan, WorldCom's former chief financial officer, pleaded not guilty to criminal fraud charges. No trial date has been set. The company's former chairman, Bernard J. Ebbers, has not been charged.

The unusual two-part structure of yesterday's settlement almost certainly reflects a desire by both sides to show progress, outside analysts said. WorldCom is struggling to emerge from bankruptcy and needs to reassure investors. The SEC, meanwhile, has struggled with image problems because of the turmoil surrounding Chairman Harvey L. Pitt and his resignation.

"The SEC needed to send the message that there's still a cop on the beat" and "tell investors 'we're not going to stop work while we change chairmen,' " said former SEC prosecutor Seth T. Taube, now with McCarter & English in New Jersey. "Both the government and the defendant had a common interest in moving on," he said, so "they'll do half now and half later."

Taube said he did not think the terms of the deal would have changed much had the two sides waited. The only other major change the SEC usually asks for -- the installation of new management -- has already occurred, Taube said.

Also yesterday, U.S. Bankruptcy Judge Arthur B. Gonzalez approved a settlement between WorldCom and an insurance company that had threatened to withdraw liability coverage.

Under the agreement, the National Union Fire Insurance Co. will continue to insure against shareholder lawsuits and other legal judgments against WorldCom's corporate officers and directors. But the coverage extends only to officials who are "non-culpable" in fraud at WorldCom.