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NEW YORK — WorldCom’s makeover came with a hefty price. When it emerged from bankruptcy on Tuesday, the company had a new name, MCI, and a balance sheet that had shed $35 billion in debt. It had new leaders, as it distanced itself from ex-CEO Bernard Ebbers, now under indictment for securities fraud. “We are emerging with a new board and management team,” MCI’s new CEO Michael Capellas said, “a sound financial position, unmatched global assets, a strong customer base and industry-leading service quality.” But the company spent about $800 million for consultants to help it reemerge from bankruptcy, according to a spokeswoman. Accounting firms KPMG and PricewaterhouseCoopers charged tens of millions in fees and expenses, and more than a dozen law firms charged millions more. As MCI’s lead attorney in the bankruptcy proceeding, Weil, Gotshal & Manges alone billed more than $35 million in fees and expenses from July 2002 through January of this year. Working through Chapter 11 reorganization is a long and difficult process. Creditors, regulators and others vie to protect opposing interests. Lawyers, accountants, appraisers, tax specialists and others participated in MCI’s 21-month long stint in bankruptcy. Unlike the draconian liquidation process, Chapter 11 bankruptcy seeks to keep a company alive while paying off creditors and shareholders. The consultants who push the process along, however, hold first rights to the company’s assets. The case was presided over by Bankruptcy Judge Arthur Gonzalez, who appointed a committee to examine billings and reduced many, some by substantial amounts. Weil, Gotshal submitted bills for about $14.1 million in fees and expenses for work done from the bankruptcy’s inception on July 21, 2002, through March 31, 2003. Leading the way among MCI’s other attorneys were Piper Rudnick, which handled a myriad of investigatory matters; Simpson Thacher & Bartlett, which handled MCI’s lawsuit and investigations with the Securities and Exchange Commission; and Jenner & Block. Piper Rudnick billed about $12 million in fees and expenses during the July 2002 through March 2003 period. Jenner & Block billed nearly $7 million during that time, and Simpson Thacher more than $4.3 million. In all, MCI’s lawyers, financial consultants and accountants billed nearly $110 million during this period. MCI hired 12 other law firms to represent its interests during the bankruptcy. Its board of directors also hired a firm. In addition, the court’s examiner, former Attorney General Richard Thornburgh, hired Kirkpatrick & Lockhart, where he is of counsel. In one month, September 2003, Thornburgh billed $6,660. Kirkpatrick billed $836,000 that month and $14.3 million through the end of September 2003. As expenses grew, Judge Jed Rakoff, who presided over the SEC’s case against MCI in the Southern District of New York, stepped in. On March 6, 2003, he directed the corporate monitor, a position he had created to oversee MCI’s business operations, to review the fees charged for the reorganization plan. He also created a new billing review process. “[I]t is increasingly obvious that the fees and expenditures being incurred by various parties, committees, examiners and the like in connection with the parallel bankruptcy proceedings are of a sufficient magnitude to warrant the attention of the Corporate Monitor of this Court,” he ruled. “Moreover, a debtor in the position of the company may not be able to effectively challenge such expenditures, and . . . experience in similar cases suggests that the various professionals involved may not vigorously challenge each other’s compensation or may simply not have an adequate overview of the overall case so as to be able to identify work being done by other professionals.” Judge Rakoff said that the fees charged from a large case like MCI’s “could substantially diminish the assets or earnings power of the company.” A month later in bankruptcy court, Judge Gonzalez formed a committee to review MCI fees and expenses for professional services. The committee hired a forensic firm, to which it agreed to pay at least $800,000 for its services. In August 2003, about a year after the bankruptcy began, the review committee issued a report expressing concern for the high number of hours billed (31,000 in all) by professionals charging more than $500 per hour. For instance, in July 2003, Weil, Gotshal had 25 attorneys at $500 an hour or more bill more than 1,300 hours. Its total fees for the month were $2.6 million. Last month, Judge Gonzalez’s fee review committee recommended that the court reduce payments for fees and expenses. For example, it recommended that Weil, Gotshal’s $6.65 million request for work done between Dec. 1, 2002, and March 31, 2003, be reduced by $566,000. Judge Gonzalez issued an order in March in which he made the final determinations for this interim period. Weil, Gotshal and Jenner received most of what they had asked for in fees and expenses. Piper Rudnick and Simpson Thacher received amounts closer to the recommendations made by the review committee. Michael Bobelian is a reporter with the New York Law Journal , a Recorder affiliate.

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