Worldcom

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Responses by the Federal Communications Commission to WorldCom’s Accounting Fraud

Warren G. Lavey*

I. INTRODUCTION ............................................................................. 615 II. HOW DID THE FCC RESPOND IN THE DAYS AND WEEKS FOLLOWING WORLDCOM’S DISCLOSURE? .................................. 619 A. WorldCom’s Disclosure of Accounting Fraud...................... 619 B. FCC’s Public Statements Responding to WorldCom’s Disclosures............................................................................ 624 C. Analysis of the FCC’s Immediate Response ......................... 628 III. WHAT REGULATIONS DID THE FCC APPLY OR NOT APPLY TO WORLDCOM DURING THE ACCOUNTING FRAUD? ....................... 631 A. Findings of Financial and Character Qualifications for WorldCom’s Licenses ........................................................... 631 1. Legal Framework for the FCC’s Analysis of WorldCom’s Qualifications ............................................ 631 2. Application of Financial and Character Qualifications Tests to WorldCom During the Fraud............................. 634 B. Assessment of WorldCom as a Financially Strong Competitor in Authorizing Other Carriers ........................... 635 C. Audit of and Reports by WorldCom ...................................... 637

*Partner, Skadden, Arps, Slate, Meagher & Flom LLP. J.D., Harvard Law School; former Adjunct Professor, Washington University Law School and Kellogg School of Management, Northwestern University; former Assistant to the Chief, Common Carrier Bureau, Federal Communications Commission. I am grateful for the assistance of Anthony Oettinger, David Prohofsky, Joseph Hanley, James Harper, Blair Levin, Holly Rosencranz, Ruth Milkman, and Joan Summers. Errors are mine alone.

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FEDERAL COMMUNICATIONS LAW JOURNAL

[VOL. 58

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D. Statistical Reports...