updated 10/3/2005 7:45:11 PM ET 2005-10-03T23:45:11

MCI Inc. has agreed to pay $331 million to 16 states and the District of Columbia to settle accusations that it engaged in accounting fraud, the company and the Pennsylvania Attorney General's Office said Monday.

The two settlements dealt with MCI-WorldCom tax filings from 1999 to 2002, in which state authorities alleged transfers between subsidiaries were illegally classified as a business expense exempt from state tax laws.

One agreement will give $315 million to 15 states and the District of Columbia, while North Carolina negotiated a separate agreement for $16 million, MCI said in a statement.

The Virginia-based telecommunications giant said it admitted no wrongdoing in either settlement.

"These agreements benefit MCI and the states alike by enabling us to put this issue behind us in a fair and equitable manner," MCI's deputy general counsel, Carol Ann Petren, said in a statement.

The money, to be paid this month, constitutes 78 percent of the amount that state investigators said was owed by the company, said Chris Momjian, a senior deputy Pennsylvania attorney general. Momjian said the states were willing to settle because the money is to be paid immediately and because they may not have gotten as much in a trial.

"If this had gone to litigation, there is a likelihood that they would have been able to show ... that they in actuality didn't owe any tax because they didn't have any income," Momjian said.

Besides Pennsylvania and North Carolina, the other affected states are Alabama, Arkansas, Connecticut, Florida, Georgia, Iowa, Kentucky, Maryland, Massachusetts, Michigan, Missouri, New Jersey, Ohio and Wisconsin.

New Jersey will be the biggest beneficiary at $53 million and Pennsylvania will get the second-most at $46.5 million. MCI also is negotiating separately with South Carolina.

State authorities said they were alerted to the alleged scheme by disaffected WorldCom bondholders who were seeking an ally during the WorldCom Inc. bankruptcy case in 2003.

Momjian said MCI subsidiaries were transferring the money to another MCI subsidiary in Mississippi, a holding company for intellectual property that was charging them a royalty that was tax exempt under Mississippi law. The transfers were being classified illegally as tax-exempt business expenses in the 15 states and Washington, D.C., he said.

The government accused WorldCom officials of committing an $11 billion fraud by making adjustments to the company's financial statements to give investors a misleading picture of the company's performance. WorldCom declared bankruptcy and is now operating under the name MCI.

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