[Congressional Record Volume 149, Number 83 (Monday, June 9, 2003)]
[House]
[Pages H5063-H5064]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[Congressional Record: June 9, 2003 (House)]
[Page H5063-H5064]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
[DOCID:cr09jn03-80]                         

 
[Congressional Record: June 9, 2003 (House)]
[Page H5063-H5064]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
[DOCID:cr09jn03-80]                         


[Congressional Record: June 9, 2003 (House)]
[Page H5063-H5064]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
[DOCID:cr09jn03-80]                         




                              MCI WORLDCOM

  The SPEAKER pro tempore (Mrs. Blackburn). Under a previous order of 
the House, the gentleman from New York (Mr. Meeks) is recognized for 5 
minutes.
  Mr. MEEKS of New York. Madam Speaker, MCI WorldCom represents the 
largest corporate fraud in United States history, costing shareholders 
more than $180 billion and still counting. So far, more than 22,000 
jobs have been lost, and the company just received a tax refund from 
the Federal Government totaling $300 million for the so-called 
overpayments on the fraud MCI WorldCom committed.
  Meanwhile, the impact in New York has been devastating. MCI WorldCom 
has laid off 30 percent of its workforce in New York, with most of the 
cuts coming in Long Island. New York State's pension fund, the second 
largest in the Nation, has lost about $306 million on MCI WorldCom, the 
worst single loss in the firm's history. Not to be excluded, New York 
City's five pension funds reported that they lost $160 million on 
WorldCom stock.
  Why should we care? Because these pension funds represent a portion, 
possibly a significant portion, of New York State's public sector 
employees, policemen, firefighters, teachers, et cetera, who became 
victims of MCI WorldCom's fraud. Just the State pension fund alone 
represents more than 950,000 active and retired public employees and 
their beneficiaries.
  There is so much more that can be said of this case; however, since 
time is brief, I will focus my remarks on what I believe are the most 
egregious items of this case.
  First, the proposed settlement with the Securities and Exchange 
Commission. I am extremely disappointed with the SEC's decision to 
settle with MCI WorldCom for a mere $500 million, and I know that 
sounds like a lot, but the original $1.5 billion fine represented less 
than 1 percent of the losses amassed by shareholders because of the 
company's fraud. This eye-popping ruling brings the SEC's credibility 
into question. Such ostrich-like attitudes by the SEC will only 
increase cynicism from investors on the SEC's legitimacy.
  As MCI begins to rebrand its corporate image and seeks to distance 
itself from its criminal stigma, it is incumbent upon the SEC to act in 
a decisive manner that adequately punishes MCI WorldCom for its massive 
crimes. Their clever attempts to return to corporate normalcy cannot be 
realized until MCI WorldCom makes complete restitution for its criminal 
acts. As the regulatory agency tasked with overseeing corporate 
behavior, the SEC should serve as a strong enforcer and not a willing 
accomplice that rewards criminal activity.
  Last week, I filed a petition with the U.S. district court requesting 
that Judge Rakoff delay any decision in the MCI WorldCom-SEC settlement 
until adequate information is available publicly to enable the thorough 
evaluation of the company's fraud, the proposed settlement, and MCI 
WorldCom's current and future plans for compliance with applicable law. 
I also urged the court to hold a hearing on the findings set forth in 
the upcoming reports of the examiner in bankruptcy and the

[[Page H5064]]

special investigative committee and evaluate the proposed settlement 
only when the SEC's investigation of the company is complete.
  The second issue regarding this case is MCI WorldCom's attempt to use 
the Federal bankruptcy laws under Chapter 11 reorganization. As a 
member of the House Committee on Financial Services and a supporter of 
reforming our bankruptcy laws, I can tell my colleagues this is not the 
intent of Congress. Reorganization under the bankruptcy laws should not 
apply when the assets are the product of criminal activities. 
Bankruptcy should not be a vehicle for laundering stolen goods.
  I am shocked and appalled that MCI WorldCom, or any other company for 
that matter, can manipulate our laws in this manner after admitting to 
criminal behavior. This is why I am working on a legislative remedy 
that will correct this and plan to introduce that legislation very 
soon. It is important to realize that if MCI WorldCom is allowed to 
reemerge from bankruptcy with 90 percent of its debt eliminated and 
retain the fruits of its crime, they will gain a significant artificial 
advantage over its competitors who played by the rules. If this 
happens, the message that regulators, policymakers, and other 
government officials would then send to the marketplace is crime does 
indeed pay; cook your books, defraud your investors, and you too can 
seek bankruptcy protection and become a more viable competitor.
  The security laws are intended to protect innocent parties from fraud 
in the marketplace, while the Bankruptcy Code is intended to facilitate 
the reorganization of financially troubled companies who make unwise 
but honest business decisions; not companies who commit fraud.
  The case with MCI Worldcom is clear. There actions were to defraud 
investors, their employees and the public. And they did so very 
successfully.
  Before I conclude, I need to make two final points. MCI Worldcom 
executives have stated that they are owned tax refund on profits they 
``really didn't make.'' Also, according to Business Week, the company 
plans to carry forward its newly recognized losses--``at least $6.5 
billion''--from prior years in order to shelter future earnings from 
taxes.
  This loophole allows MCI Worldcom to abuse the tax code because under 
Internal Revenue Code Sec. 108(a), income from the cancellation of debt 
(COD) is excluded from a taxpayer's gross income if the cancellation 
occurs in a Title 11 bankruptcy proceeding or under other specified 
circumstances. Under the code, sec. 108(b), a taxpayer benefiting from 
this income exclusion must reduce its tax attributes, including net 
operating losses (NOLs).
  MCI Worldcom is exploiting an obscurity in the law. Rather than treat 
its NOLs and other tax attributes on a consolidated basis, the company 
is interpreting the law in a manner that allows it to deal with the 
NOLs on a separate basis. This would allow MCI Worldcom to preserve its 
NOLs and other tax attributes, so an estimated $10 billion or more of 
income to the new MCI Worldcom will be tax free. This means that the 
company will not pay taxes into the foreseeable future.
  Now, although I support targeted tax relief and I realized long ago 
that the Bush tax cuts benefitted those at the very top, this is 
ridiculous. Here again, I will introduce legislation to clarify the 
treatment of tax attributes under section 108 of the Internal Revenue 
Code of 1986 for taxpayers who file consolidated returns.
  Finally, I need to address MCI Worldcom's best customer--you, me and 
everyone who pays federal taxes. Why? Because the federal government 
continues to be its biggest and best customer despite the company's 
criminal behavior. For a matter of fact, the company is getting no-bid 
contracts like the one to build a wireless network in Iraq, a line of 
business the company is not even in.
  Curious? You bet. The federal government did not have this same 
policy with Enron and Arthur Andersen. Since committing the largest 
fraud in U.S. history MCI Worldcom has moved up to the eighth largest 
federal technology contractor according to a review by Washington 
Technology, with $772 million in sales. Why would the government award 
business to a criminal organization who is very unstable? You will have 
to get your answer from the Bush Administration.
  To allow a corrupt, criminal enterprise like MCI Worldcom to 
perpetuate its violation of the securities laws and visit this injury 
on an already distraught sector would be an injustice to the millions 
of its victims nationwide. Whether it is the proposed settlement, its 
bankruptcy proceedings, its abuse of the tax code or the awarding of 
federal contracts, MCI Worldcom must pay for its crimes and make full 
restitution. Anything less will be the biggest fraud of all.

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