Risk Management

WorldCom Investors Get $651 Million

In the settlement, a group of banks and other defendants agreed to compensate institutional investors for losses on purchases of WorldCom bonds and...
Stephen TaubOctober 27, 2005

A total of 67 institutional investors recovered more than $651 million from a group of banks and other defendants to compensate the investors for losses on purchases of WorldCom bonds and stock from 1998 through 2001, according to Lerach Coughlin Stoia Geller Rudman & Robbins LLP, the law firm that represented the plaintiffs.

The institutional investors chose to opt out of the $6.1 billion class action earlier this year that stemmed from litigation involving WorldCom’s bankruptcy filing in 2002 after an $11 billion accounting fraud at the company.

The $651 million recovery won’t be reduced by legal fees, since attorneys’ fees and expenses were paid by defendants in addition to this recovery, according to Lerach Coughlin.

The institutional investors also recovered millions of dollars for December 2000 bond-offering claims the class action did not pursue, according to plaintiffs’ attorney William Lerach.

The plaintiffs’ group is made up of public and private pension and benefit funds, joint employer-employee funds, insurance companies, and other institutional investors. They include the State Universities Retirement System of Illinois, the Teachers’ Retirement System of the State of Illinois, the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, the Los Angeles County Employees Retirement Association, the West Virginia Investment Management Board, and the Illinois State Board of Investment.

The defendants in the suit were CitiGroup, J.P. Morgan, Deutsche Bank, Tokyo-Mitsubishi, ABN AMRO, WestLandes, BNP Paribas, Caboto, Mizuho, Bank of America, CSFB, Lehman, Goldman Sachs, UBS Warburg, Arthur Andersen, and certain WorldCom officers and directors.

As part of the settlement, CitiGroup and J.P. Morgan have agreed to jointly petition the Securities and Exchange Commission with some of the plaintiffs to issue rules requiring increased disclosures in future securities offerings. The disclosure would include more information about loans to issuers and the issuers’ officers, increased information regarding allocation of initial public offering shares to issuers’ insiders, and more information about research coverage underwriters provide about issuers. “Our clients commend CitiGroup and J.P. Morgan for taking a leadership position and seeking increased disclosures which will benefit investors going forward,” said Lerach.

The underwriters must “upgrade their due-diligence efforts” after paying twice to resolve WorldCom bondholders’ claims, John Coffee, a law professor at Columbia University, told Bloomberg.

The institutional investors claimed they lost roughly $1.8 billion from their investments in WorldCom bonds and stock.

Lerach Coughlin asserted that its clients recovered a higher proportion of their losses than the plaintiffs in the class action did for the same securities. Further, the institutional investors will be getting their money now, while class members will have to wait for up to two years to receive payment because of claims processing and the pending resolution of appeals, the firm pointed out.

Last week, five New York City public pension funds that also didn’t join in the class-action settlement settled their own lawsuits for a total of $78.9 million.