Congressional Record, Volume 149 Issue 83 (Monday, June 9, 2003)

[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]

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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