Critics of telecommunications giant WorldCom (now renamed MCI) blasted its bankruptcy reorganization plan during a U.S. Senate committee hearing Tuesday, saying the plan in place neglects to punish the company for its past accounting fraud and puts competitors at a disadvantage in the marketplace.

While critics, including Verizon, called for the U.S. government to strip WorldCom of its "ill-gotten gains," defenders of the troubled carrier say the company has been punished enough. They told the Senate Judiciary Committee that any attempts to further punish the company for accounting fraud disclosed in mid-2002 would only hurt MCI's creditors and remaining employees, not the handful of corporate executives who allegedly overstated the old WorldCom's financial statements by $11 billion.

"Nothing that MCI's opponents suggest would hurt the already departed and already disgraced senior management of WorldCom, who were ousted and replaced after the fraud was discovered," said Nicholas Katzenbach, a recent addition to the MCI board of directors. "The draconian punishment advocated by MCI's opponents would, at best, be a futile gesture -- and, at worst, would inflict further pain on the innocent."

Katzenbach and Dick Thornburgh, the court-appointed WorldCom bankruptcy examiner, largely blamed former CEO Bernard Ebbers and former CFO Scott Sullivan for the accounting problems. Thornburgh is scheduled to issue a final report on WorldCom's troubles by September, he said. Ebbers resigned from WorldCom in April last year, two months before the company said it would restate its financial results for 2001 and the first half of 2002.

Katzenbach and Marcia Goldstein, the bankruptcy lawyer for MCI, accused Verizon and other competitors of asking that MCI be broken up and sold. "Let's be clear -- Verizon's proposed punishment, which ... would be a breakup or forced sale of MCI, is only for its own benefit, so that it can bid for MCI's business at a distressed value and eliminate it as a competitor," Goldstein said.

But William Barr, executive vice president and general counsel at Verizon, denied that Verizon wants MCI sold off. "We don't care what the result ultimately is in bankruptcy, as long as the government recognizes as well its enforcement responsibility, and MCI is not able to use its ill-gotten gains for a decisive advantage in the marketplace," he said. "... We have no problem with the creditors getting paid money for their losses, but what is wrong here is for the creditors to waltz in as if they're the only ones hurt by this."

The IDG News Service is a Network World affiliate.