Company settles with WorldCom investors

Friday, March 4, 2005 | 9:25 a.m.

NEW YORK -- Bank of America has agreed to pay $460.5 million to settle claims by former WorldCom investors who bought the company's stock and bonds before it collapsed in 2002. The latest agreement brings total settlements in the case to date to more than $3 billion.

Last year, Citigroup paid $2.6 billion to settle its share of a class-action lawsuit, which is being spearheaded by New York State Comptroller Alan Hevesi on behalf of the New York State Common Retirement Fund.

The two settlements could put pressure on the remaining 14 defendants, which include J.P. Morgan Chase and Arthur Andersen, to settle before the start of a trial in the class-action case, scheduled for March 17.

The reason: Once the trial begins, whoever hasn't settled will be liable for the remaining damages. Any damages the jury awards, beyond the amount that Bank of America and Citigroup have agreed to pay, would be "borne by the remaining defendants," said Leonard Barrack, the co-lead counsel in the case with Hevesi and a partner in Barrack Rodos & Bacine in Philadelphia.

In the class-action lawsuit, the investors asserted that the banks that sold them WorldCom stock and bonds were at fault for failing to fully review WorldCom's financial condition beforehand.

"The fact that we have achieved a settlement of this magnitude ... sends a strong message to investment banks that investors expect and will require them to conduct meaningful due diligence and not merely rely on others to perform their obligations," Hevesi said in a statement.

Bank of America denied it violated any laws. In a news release, the bank said it had decided to settle "to eliminate the uncertainties, expense and distractions" of continued litigation.

The settlement marks the latest turning point in one of the most celebrated scandals in recent corporate history.

WorldCom rose to power in the telecom world during the 1990s, only to crash and burn in 2002 amid allegations that senior officials, led by CEO Bernie Ebbers, were cooking the books. By the end, WorldCom was driven into the largest bankruptcy in U.S. corporate history. And more than $180 billion in shareholder value -- calculated from the peak of the stock's rise -- had been wiped out.

WorldCom, which changed its name to MCI after it emerged from bankruptcy last year, has announced plans to be acquired by Verizon, the New York-based telecommunications giant. Verizon beat out Qwest with a bid of $6.7 billion. In an unusual twist, Qwest is continuing to press its case with the MCI board.

Ebbers, meantime, is on criminal trial in New York on charges of ordering senior WorldCom executives to distort the company's accounting numbers to meet its financial projections.

Should Ebbers be found guilty, Barrack suggested, it would have a "positive impact" on the class-action case by increasing pressure on the remaining defendants to settle.