WorldCom deals with more fraud blows; Enron brightens after SEC releases bank settlement details

By Carlise Newman

Chicago, July 28 - WorldCom Inc. and Enron Corp. had the biggest news of the day in distressed trading, with WorldCom fighting more accusations of fraud while Enron received notice of settlements with several banks from the Securities and Exchange Commission.

WorldCom's plans to emerge smoothly from bankruptcy as MCI appear less of a possibility now, market participants said. WorldCom was accused of rerouting telephone calls through Canada as a way to avoid tariffs owed to other telecom companies for use of their networks.

WorldCom's bonds dropped two points from Friday trading to 29¾ bid, 30¾ offered, a trader said.

The rerouting practice is said to have been going on for 10 years but the charges only surfaced in the last 10 weeks when a former WorldCom employee alerted the FBI about a company project known as "Canadian Gateway," according to various news reports, starting with one in The New York Times on Sunday.

"I think there were a lot of people wondering what was going to happen when trading started today. Really there weren't big fireworks. The bonds opened around 29, then moved a little higher," a trader said of WorldCom.

Many of WorldCom's rivals have charged that bankruptcy gave MCI an unfair advantage and that it should be liquidated rather than revived.

"It just seems like they can't stay out of trouble. What a mess over there," said one market source.

Rerouting calls through Canada allegedly allowed WorldCom to send them back into the U.S. on AT&T's network. Therefore AT&T would pay connection charges that should have been paid by WorldCom.

In a statement late Monday, Michael D. Capellas, WorldCom's chairman and chief executive officer, said it would cooperate fully with the U.S. Attorneys Office's investigation and carry out its own internal analysis.

"As I have said all along, we will do the right thing," Capellas added. "We have a zero-tolerance policy and if any wrongdoing is discovered you can be certain that we will take appropriate action swiftly."

Regarding news on Enron, Citigroup Inc. and J.P. Morgan Chase & Co. agreed to pay a combined $255 million to the SEC to settle allegations about their responsibilities for Enron's downfall, the SEC said in a news release Monday.

A trader said the Enron bonds were seen at 20 bid, 21 offered, 3 points higher than Friday.

But traders were hesitant to connect a rise in Enron's bonds to Monday's news. One said that the bonds had been active and higher late last week and were continuing their ascent.

The settlement calls for J.P. Morgan, the second largest U.S. bank by assets, to pay $135 million and Citigroup, the largest, to pay $120 million. It will allow the banks to avoid prosecution but force them to alter some business practices.

The banks neither admitted nor denied SEC charges that they helped Enron mislead investors by disguising loans as revenue.

The money will be put into a fund for victims of fraud at Dynegy and Enron. In addition, the banks will each pay another $25 million to be split between New York State and New York City, bringing the combined payout to $305 million.

Elsewhere, Mirant was still relatively active on Monday, traders said.

"They've been moving in some direction every day. No lethargy there," one said.

Mirant's 8.3% notes due 2011 were quoted at 80 bid, 81 offered, two points higher than Friday, a trader said.

Last week the bankruptcy court approved an interim procedure which requires some holders of claims, preferred securities and common stock to provide at least 10 days notice of their intent to buy or sell claims against Mirant.

Mirant said the procedure applies to holders of claims of more than $250 million and shareholders who own or seek to own at least 4.75% of Mirant's stock

The court's order also provides for expedited procedures to impose sanctions for a violation of its order, including monetary damages and the avoidance of any transactions that violate the order. A hearing on a final order has been set for Aug. 8.

The relief was sought to prevent potential trades of claims or stock that could negatively impact Mirant's net operating loss tax attributes, which are currently $1 billion and could reach $2.5 billion by the end of 2003. The tax attributes may result in potential future tax savings of as much as $200-$400 million, Mirant said.

Meanwhile, Bethlehem Steel Corp.'s benchmark 10 3/8% notes firmed to about six or seven cents on the dollar, up from prior levels around five cents, a trader said.

The bankrupt steelmaker, which was purchased by International Steel Inc. in May, was active on "completely unconfirmed" rumors from Friday that the company was moving toward resolving pension funding issues.

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