Accounting firm settles lawsuit on WorldCom

Larry Neumeister

Monday, April 25, 2005 | 9:44 a.m.

NEW YORK -- Arthur Andersen has reached a settlement with WorldCom investors who had accused the company's former outside auditor of violating securities laws by failing to protect them from WorldCom's historic $11 billion accounting fraud.

Details of the settlement were not immediately released. U.S. District Judge Denise Cote indicated that an expedited preliminary approval hearing on the settlement would occur Tuesday. The deal interrupted a trial in its fifth week on the accusations contained in a class action lawsuit brought after WorldCom's 2002 collapse, the largest bankruptcy in U.S. history.

Before the trial, major investment banks agreed to pay more than $6 billion in settlements and a dozen former board members settled the case for $24.75 million, leaving Arthur Andersen as the sole defendant.

A message left today with a lawyer for Arthur Andersen was not returned.

The lawsuit was led by New York state Comptroller Alan Hevesi, acting as trustee of the state employees' retirement system.

John Chartier, a spokesman for Hevesi, said he had no immediate comment.

The plaintiffs maintained that WorldCom's annual financial statements for 1999, 2000 and 2001 contained false statements and that Arthur Andersen issued its audit opinions with an "intent to deceive, manipulate or defraud."

Arthur Andersen insisted through its lawyers that each of its audit opinions from 1999 through 2001 was generated in good faith and with no intent to deceive, manipulate or defraud.

To find against Arthur Andersen, the jury would have had to conclude that Arthur Andersen's conduct was "highly unreasonable" and that WorldCom's fraud was known to the auditor or was so obvious that Arthur Andersen must have been aware of it.

Last month, former WorldCom CEO Bernard Ebbers was convicted of fraud, conspiracy and false regulatory filings in the accounting scandal. He could spend the rest of his life in prison.

WorldCom, which collapsed when the accounting fraud to inflate earnings and hide expenses was revealed, has re-emerged as MCI Inc., based in Ashburn, Va.

The class action lawsuit began as many investor suits, eventually consolidated by the judge.