Bank of America and its Fleet Securities unit agreed to pay $460.5 million to settle a class-action lawsuit with WorldCom Inc. investors. Under the deal, BoA denied that it violated any law and added that it settled in order to eliminate the uncertainties, expense, and distraction of further litigation.
The litigation stems from the bank’s role in the issuance of $15.4 billion in WorldCom bonds when, according to a lawyer for the investors, it should have known the company was lying about its financial health, reported Bloomberg. This is the second settlement in the case, the wire service added: In May 2004, Citigroup Inc. agreed to pay $2.6 billion to resolve claims by WorldCom investors.
“The fact that we have achieved a settlement of this magnitude, and at the same rate as Citigroup paid earlier, 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,” said New York State Comptroller Alan Hevesi, the trustee of the New York State Common Retirement Fund and the court-appointed lead plaintiff, in a statement.
According to wire-service reports, 14 other underwriters remain as defendants, including J.P. Morgan Chase & Co. and Deutsche Bank AG, as well as former WorldCom accountant Arthur Andersen LLP and 12 former company directors. A trial is scheduled for March 17 in New York, stated Hevesi.
“The pressure will mount on the remaining defendants,” Robert Mintz, a white-collar defense lawyer, told Bloomberg. “No one will want to be the last defendant standing in a suit in which the liability is seemingly bottomless.”
In a separate case, Citigroup agreed to pay $75 million (pre-tax) to settle a class-action lawsuit with purchasers of Global Crossing securities. As with the BoA-WorldCom settlement, Citigroup denied any violation of law and stated that it was agreeing to settle “solely to eliminate the uncertainties, burden and expense of further protracted litigation.”
Meanwhile, Bloomberg — citing lawyers for Enron Corp. and workers — reported that the company has tentatively agreed to settle lawsuits over employee pension-fund claims.
Under that proposed agreement, the former energy giant would allow a $356.2 million claim to be made against it in U.S. bankruptcy court to resolve employee lawsuits over stock losses in its pension fund, Bloomberg explained, resulting in a potential $64 million recovery for Enron workers under the company’s reorganization plan.