The Justice Department also is considering indicting WorldCom as a corporation, these people said, a move that could threaten the survival of the nation's second-largest telecommunications company. WorldCom filed for protection under the U.S. Bankruptcy Code earlier this week, meaning any fines could divert money from its creditors.

An indictment of former chief executive Bernard Ebbers also is likely, people familiar with the matter say. Prosecutors first want to put pressure on his former subordinates to produce evidence against him. Mr. Ebbers resigned under pressure in April.

Scott Sullivan, the fired WorldCom chief financial officer, and David Myers, the company's former controller, are expected to face a variety of charges by the Justice Department, including securities, mail and wire fraud. Prosecutors believe Mr. Sullivan to be the architect of the alleged fraud, while Mr. Myers has admitted to WorldCom audit staffers that he knew about the questionable accounting treatment, according to people with knowledge of the matter.

WorldCom publicly revealed on June 25 that it hid $3.85 billion in expenses and falsely posted profits over a five-quarter period beginning in early 2000. The Securities and Exchange Commission has already filed civil fraud charges against WorldCom and is continuing to investigate the company, as are both houses of Congress. Internal documents provided to the Securities and Exchange Commission and Congress show that Messrs. Sullivan and Myers were told two years ago that the accounting treatment they were using was questionable. Two WorldCom employees raised the concerns, the documents show.

An indictment of the company "is flatly inconsistent with what federal prosecutors have communicated directly to us," said WorldCom spokesman Brad Burns. The Department of Justice declined to comment on the matter. An attorney for Mr. Sullivan declined to comment; Mr. Sullivan maintained to the board before his ouster that his accounting was proper. Mr. Myers's attorney couldn't be reached for comment.

If proven, the corporate fraud would be the largest in history. WorldCom, the parent of MCI, carries half the nation's Internet traffic and voice and data for major governmental agencies including the Federal Aviation Administration and the Departments of Defense, Labor, Commerce and Agriculture. The company has 20 million residential customers and $35 billion in revenue, but even before the scandal has been under pressure from falling revenue in the long-distance business.

Prosecutors have set a deadline of next Wednesday to file the indictment against Messrs. Sullivan and Myers, according to people familiar with the WorldCom probe, though the deadline could be extended and either could still reach an agreement with the government.

Wall Street Journal Staff Reporters Deborah Solomon, Jared Sandberg and Laurie P. Cohen contributed to this report.