MCI cleared a big stumbling block from its path to recovery Monday, agreeing to pay a record fine in a settlement with stock market regulators.

The Ashburn, Va., telecom giant, formerly known as WorldCom, said it would pay $500 million to settle civil fraud charges stemming from the accounting irregularities that drove the No. 2 long-distance provider into Chapter 11 bankruptcy last summer. The proposed settlement with the Securities and Exchange Commission comes less than a year after the alleged fraud came into public view, paving the way for a quick disposition of the high-profile case.

U.S. District Judge Jed Rakoff, who is overseeing the WorldCom case, is expected to hear further discussion on the terms of settlement and make his final ruling at a June 11 hearing.

Given the magnitude of WorldCom's $11 billion accounting misdeeds and the fact that its $104 billion in assets made it the country's largest bankruptcy, some observers were inclined to regard the fine as too small. But the SEC and legal experts point out that the settlement dwarfs the agency's largest previous civil fraud settlement, a $10 million deal with Xerox.


Since last fall, MCI has been moving at a rapid pace to restore its business and clean up its name.

Last month, the company relocated to Ashburn from Clinton, Miss., and changed its name to MCI. Now led by former Compaq CEO Michael Capellas, MCI has also replaced nearly its entire top management team in its efforts to emerge from Chapter 11.

MCI has been relatively successful on the business front, mostly maintaining its large corporate and government services contracts. Meanwhile, protected from creditor and having cut staff and equipment spending steeply, MCI managed to swing to a profit in January on about $2 billion in monthly sales.

Many investors and industry observers expect that when it emerges with its minimal debt, lower costs and broad array of services, MCI will post a formidable threat to peers such as AT&T, Sprint and Baby Bells such as SBC and Verizon.

Big Bill

In November, WorldCom agreed to a partial settlement with the SEC, leaving open the amount in penalties the long-distance phone company would have to pay. The SEC had originally sought $1.5 billion in fines.

Upon reaching the initial settlement in November, Judge Rakoff commended the SEC and WorldCom for their progress. "I think it shows the company has made laudable progress in moving toward a much more positive position and the correction of past mistakes," Rakoff said at the time.

WorldCom filed for bankruptcy on July 21, less than a month after the once-hot telco shocked Wall Street by disclosing a massive sham that included disguising costs and padding profits. Since then, prosecutors have enlisted four former WorldCom workers to testify in criminal cases being brought against top executives of the company when the fraud took place. Scott Sullivan, the company's former financial chief, was arrested in August on charges that he engineered the fraud.

Last month, Sullivan faced new charges. An 11-point Manhattan grand jury indictment accused Sullivan of using bogus financials to seek some $4.25 billion in credit agreements from banks including Chase Manhattan and Bank of America.

Sullivan is out on bail pending trial.