Just how big will the impact of Oklahoma’s charges against the former WorldCom (now MCI) be in the corporate’s attempts to rehabilitate itself? It was making good progress in removing itself from Chapter 11 until now. But the fallout could be considerable.

A report into the telecoms operator issued this week by Richard Breeden, a former chairman of the Securities and Exchange Commission (SEC) who was appointed by the bankruptcy court, acknowledged the strides made by the company, which has a completely new management.

The Breedon report came up with a series of corporate-governance recommendations designed to ensure that the fraud could never be repeated at MCI as well as serve as a model of good practice across corporate America. However, there are still several obstacles in the way of MCI’s emergence from bankruptcy, which is scheduled for next month. Chief among them is a new set of criminal charges filed this week by the state of Oklahoma, which looks set to be followed by other states.

It is unclear, as yet, if the charges will delay the hearings in the bankruptcy court. Ironically, they may jeopardise any criminal trials of former WorldCom executives, including Ebbers, that federal regulators may be planning to bring.

The indictment is unusual on two counts. First, federal authorities have already charged several people over the $11 billion fraud at WorldCom. (And MCI has agreed to pay $500m in cash and $250m in stock to settle SEC fraud charges.) Federal authorities prefer to conduct such investigations themselves, without state involvement, in order that any settlement apply nationwide. SEC officials were irritated when Eliot Spitzer, the New York attorney-general, took the lead in the investigation into conflicts of interest between analysts and bankers on Wall Street.

It is also unusual that Oklahoma is seeking to charge the company, as well as the individuals. Federal regulators have refrained from suing WorldCom for fear of the collateral damage it would inflict on the group’s creditors, its more than 50,000 employees, thousands of business customers and 20m retail customers. Moreover, the company, and four of the individuals charged by Oklahoma, have co-operated with the authorities. To reward that by suing the company might discourage other mismanaged companies, or guilty low-level employees, from co-operating in future.

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