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Securities Regulation, Keyed to Choi
Official Committee of Unsecured Creditors of WorldCom, Inc. v. Securities and Exchange Commission
Citation:
467 F.3d 73 (2006)Facts
On June 25, 2002, WorldCom announced it would restate financial results due to accounting irregularities that overstated income by $9 billion from 1999 through first quarter 2002. The SEC immediately filed civil enforcement action alleging violations of federal securities laws. WorldCom filed Chapter 11 bankruptcy on July 21, 2002, and the U.S. Trustee appointed the Official Committee of Unsecured Creditors. The district court approved a settlement requiring WorldCom to pay $750 million civil penalty plus $1 nominal disgorgement, triggering the Sarbanes-Oxley Fair Fund provision. The SEC’s distribution plan excluded investors who recovered thirty-six cents or more on the dollar through bankruptcy or securities sales, and investors who made net profits on WorldCom securities during the fraud period. The Committee, though not formally a party to SEC proceedings, objected to these exclusions as unfairly disadvantaging creditors compared to shareholders and violating bankruptcy priority principles.
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