MCI Inc. said Thursday a federal probe into the WorldCom bankruptcy was focused on one former member of the creditors' committee that oversaw the company's emergence from the largest U.S. bankruptcy.
MCI comments in a court filing came in response to a motion by 11 creditors for MCI to pay their legal costs stemming from the U.S. Securities and Exchange Commission investigation. The creditors had said the SEC demanded thousands of documents from the creditors' committee as part of its investigation.
The SEC's investigation is focusing in particular on the actions of one WorldCom creditor, a New York investment firm named Blue River Capital, one person familiar with the investigation told Reuters Wednesday.
Blue River has declined to comment on any SEC matters. Its founder, Van Greenfield, was previously co-chairman of the WorldCom creditor's committee.
The exact nature of the SEC investigation remains unclear. But in a court filing on Thursday, MCI said the investigation was "relating to the conduct of a former committee member" and did not involve MCI. An MCI spokesman declined further comment.
WorldCom, one of the largest U.S. phone carriers, sought Chapter 11 bankruptcy protection in July, 2002, burdened by billions of dollars in debt from an acquisition spree and multiple fraud charges against senior executives. Much of the bondholder debt was converted to equity following the bankruptcy.
As part of its emergence, MCI settled fraud charges brought by the SEC and agreed to pay $750 million in cash and stock to shareholders and bondholders who lost about $200 million in the company's implosion.
Earlier this year, the SEC asked MCI for information regarding state tax shelters set up by accounting firm KPMG.
The SEC in early July issued subpoenas from 11 current members of the WorldCom Official Committee of Unsecured Creditors, the court-appointed bondholder committee, according to an Aug. 24 filing in the U.S. bankruptcy court in New York.
The subpoenas demanded "thousands if not millions of pages" regarding communications between WorldCom and its bondholders, including confidentiality agreements, meeting notes and other information, according to the court filing.
The filings do not make clear which creditors received subpoenas. The original committee had 15 members, including investor groups ESL Investments and Cerberus Capital Management; banks including Deutsche Bank and ABN Amro; and other companies including Electronic Data Systems Corp. and Time Warner Inc. A top executive at Cerberus, Mark Neporent, serves on MCI's board.
In its filing Thursday, MCI told the court it was opposed to the fee request from the committee members, saying most of the committee's role in the case ended when MCI emerged from bankruptcy.
"There are no acts being performed by these parties as members of any official committee which are giving rise to these fees," MCI said in its filing. "The conduct in question is not in their capacity as committee members, but rather, because they were on the committee and may have information related to the conduct of another party."
The U.S. Bankruptcy Court for the Southern District of New York is scheduled to hold a hearing on Tuesday to review the fee request.