Judge Bars MCI from Paying Additional Professional Fees

A District Court judge has ordered MCI to stop paying the numerous professional firms that guided it through its complicated, $104 billion bankruptcy.

Judge Jed Rakoff, of the Southern District of New York, told the telecommunications giant and the firms in question to explain why a budgeting process he set up was not followed, according to the New York Law Journal. Several firms, he said, submitted excessive requests or had not received the proper approval. Rakoff is questioning more than $25 million in fees.

WorldCom emerged from scandal and bankruptcy in April under the new name MCI, which eliminated debts of $35 billion through the process. WorldCom's former chief executive, Bernard Ebbers, is set to go to trial next year for securities fraud for his part in inflating profits by $11 billion.

The bankruptcy proceedings have already cost MCI roughly $800 million in fees charged by law, accounting and consulting firms along with investment banks and others. Rakoff set up a system in 2003 by which the firms submitted quarterly bills to a monitor, Richard Breeden, who reviewed the bills to save the company money. The process was also administered by the bankruptcy Judge Arthur Gonzalez.

Rakoff also called on Breeden to recoup any wrongly made payments.

Rakoff's system would allow scrutiny of the fees up front, rather than after the fact. MCI's consultants were required to submit a budget four times a year to Breeden for review. However, while the quarterly budget was meant to act as a cap, firms were allowed to seek more money for work arising from unforeseen circumstances.

Rakoff did not name the firms or specific charges he found objectionable, the Law Journal reported. An MCI spokesman said the company would comply with the judge's demand to explain the bills but did not offer details.

Some of the huge fees requested during the bankruptcy include a $115 million bill from KPMG for work performed between October 2003 and July 2004. Deloitte & Touche and Deloitte Consulting asked for $75 million for the same billing period.

Rakoff's budgeting system worked alongside the fee review committee set up by Gonzalez. That committee recommended that the court reduce payments for fees and expenses by $7.2 million for the late 2002/early 2003 billing cycle. The committee suggested the largest reduction for KPMG — a $5 million decrease on the $21 million billed by the accounting giant during the cycle.

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