Capital Markets

WorldCom Settlement Tops Cendant’s

The total recovery of more than $4 billion sets a record for the largest in a securities class action.
Stephen TaubMarch 11, 2005

Seven more banks have agreed to settle claims for their role in selling WorldCom Inc. bonds two years before the company collapsed.

Late Thursday, Deutsche Bank agreed to pay $325 million, according to the Associated Press. That agreement followed close on the heels of an announcement from Alan Hevesi — the trustee of the New York State Common Retirement Fund and the court-appointed lead plaintiff in the class action brought by WorldCom investors — that WestLB of Germany will pay $75 million and Caboto Holding SIM of Italy will pay $37.5 million, the wire service added.

On Wednesday, Abn Amro, Mitsubishi Securities International, BNP Paribas Securities, and Mizuho International agreed to pay a total of $428.4 million to settle investor claims

Including the six banks that previously agreed to settle — Bank of America, Lehman Brothers, Goldman Sachs, Credit Suisse First Boston, UBS Warburg, and Citigroup — the total recovery so far is more than $4 billion, the largest in a securities class action.

The previous record was $3.18 billion in the Cendant Corp. litigation.

In a statement reported by the AP, Hevesi noted that “the settlements announced today leave J.P. Morgan Securities and certain of its affiliates …as the only major underwriter defendant left in the case.” That trial is scheduled to begin in New York federal court on March 17.

Adding to the pressure to settle are jury deliberations in the trial of Bernard Ebbers. WorldCom’s former chief executive officer is facing charges of conspiracy to commit securities fraud, securities fraud, and making false statements to the Securities and Exchange Commission for his role in misstating $11 billion in revenue and expenses at the telecommunications giant.

A new deal may also be hammered out soon with 10 former outside directors of WorldCom. In a January settlement, they agreed to pay $54 million, including $18 million out of their own pockets. But that deal collapsed a month later after a judge struck down one critical provision of the agreement.