Risk & Compliance

WorldCom Investors to Receive $150 Million

Sarbox provision cleared the way for $750 million in payouts.
Stephen TaubOctober 23, 2006

Investors in WorldCom who were victimized by the former telecom giant’s massive fraud are about to recover some of their lost money.

Securities and Exchange Commission Chairman Christopher Cox announced late Friday that regulator “will begin immediately” distributing up to $150 million from its “Fair Fund” to help compensate investors for their losses. Under Section 308 of the Sarbanes-Oxley Act, the entire $750 million penalty that the SEC obtained from WorldCom was paid into the “Fair Fund” when the reorganized company emerged from bankruptcy protection in April 2004. All of the money is earmarked for return to injured investors.

On Thursday, the United States District Court overseeing the SEC litigation against WorldCom cleared the way for the first installment of distributions, after determining that a sufficient number of claims have been processed, said SEC officials. “This most recent success of the Fair Funds process will play an important role in encouraging investors to continue to place trust in America’s capital markets,” said Cox, in a statement. “It shows that even when things go terribly wrong, there is a safety net for injured investors.”

The SEC said investors in 110 countries made nearly 450,000 claims to the Fair Fund — in 10 languages—related to approximately 9.4 million transactions in those securities. The initial $150 million distribution covers claims processed to date, including most of those filed by individual investors. Subsequent distributions will be made as the remaining claims are processed.

Under the “Fair Funds for Investors” provision of Sarbox, all fines obtained in SEC enforcement actions are to be distributed to investor victims. Prior to the 2002 law, all civil penalties obtained by the SEC in securities enforcement actions were deposited in the general fund of the U.S. Treasury.