WASHINGTON -- This past week, the Securities and Exchange Commission reached settlements with both WorldCom Inc. and PricewaterhouseCoopers LLP, forcing the companies to pay penalties for wrongdoing.

But some victims of corporate misdeeds ask: Why isn't the SEC hauling the scofflaws into court to let jurors decide the punishments?

"The SEC should be enforcing the law to its fullest extent," not negotiating compromises, said Mitch Marcus, a former WorldCom manager who founded BoycottMCI.com to lobby for stiff punishment. Compared with the suffering of investors, WorldCom ended up with "a very, very insignificant fine."

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But the SEC says a settlement offers several advantages. By negotiating an agreement, the government can impose swift punishment that forces changes in corporate behavior to prevent future crimes, said Thomas Newkirk, associate director of the SEC's enforcement division.

"You get things much more quickly than would otherwise be the case," Newkirk said.

"The typical litigation case probably takes between two and three years," he said. "One needs to balance the benefit of getting remedial provisions into place now, as opposed to getting them three years from now."

WorldCom agreed last week to settle fraud charges by paying $500 million, the largest penalty ever proposed for accounting fraud. In New York, U.S. District Court Judge Jed Rakoff is expected to decide in June whether to approve it.

Also last week, the SEC announced that PricewaterhouseCoopers LLP agreed to pay $1 million to settle allegations of improper conduct related to its audits of SmarTalk TeleServices, a now-bankrupt provider of prepaid telephone cards and wireless services.

With the lure of a settlement, the SEC can force almost immediate changes to protect shareholders and others from further victimization, Newkirk said.

For example, after the WorldCom accounting fraud was revealed last June, "we got a monitor put into place to make sure we didn't have another Enron-type situation where the managers were giving themselves big bonuses on the way out of the door," Newkirk said. "We also got controls put into place to fix what was wrong with their record keeping and the accounting."

In the PricewaterhouseCoopers case, the firm agreed to establish new document-retention policies.

J. Boyd Page, a securities attorney in Atlanta, agreed that settlements typically offer more benefits than long court battles.

"Settlements can make sense because white-collar crime is ofttimes very, very complicated," Page said. "It can take weeks on end simply to present a case" to the jury after years of investigative work.

As the case drags on, costs mount, he said. "There is a huge cost of going to trial, just in terms of absolute dollars, to retain lawyers, pay experts and pay employees to sit in a courtroom instead of doing their own jobs," he said. "Furthermore, trials, whether you win or lose, can be quite devastating simply because of adverse publicity."

But Page said the reluctance to go to trial can harm shareholders who want to sue.

"From a plaintiff's perspective, I prefer to go to trial because during the course of that, there is a lot of testimony developed, a lot of documentary evidence made public," he said. "That type of evidence often bolsters the claims of individual investors who have lost their life savings."

The settlements also fail to help victims of corporate wrongdoing by allowing the perpetrators to avoid admissions of guilt. The WorldCom settlement allowed the company to declare that it does not admit guilt.

Page said companies insist on that provision because typically, "they remain subject to a number of class-action civil lawsuits. An admission of guilt would pretty much stop them from fighting those lawsuits."

Reformers alarmed

Charlie Cray, a corporate reform expert for Citizen Works, a Ralph Nader group, said quick settlements allow companies to get off too easily.

At WorldCom, where company officials overstated earnings by about $11 billion since 1999, a punishment of $500 million won't amount "to a penny on the dollar," Cray said. "The number sounds impressive at first because it's the largest ever levied in history, but you take into count all the factors, and it looks pretty weak."

Moreover, because the company didn't have to admit a crime, "it doesn't help people in lawsuits," he said.

If the court accepts the SEC proposal, the settlement could help WorldCom Chief Executive Michael Capellas lead WorldCom out of the largest bankruptcy case in history.

WorldCom's revelations last June of massive overstatements of earnings came on the heels of similar announcements by Enron Corp., Tyco International Ltd. and others.

The SEC accused WorldCom with committing fraud "in connection with several securities offerings" and violating record and bookkeeping laws. Former Chief Financial Officer Scott Sullivan, who was fired after the earnings misstatements were discovered, has pleaded not guilty to criminal fraud charges. Ex-CEO Bernard Ebbers has said he was unaware of the disguised expenses and has not been charged.

Four other executives have pleaded guilty to criminal charges filed in New York and are cooperating with investigators.

© 2003 The Atlanta Journal-Constitution

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