Red Herring : short title:
full title: WorldCom Investors Get $651M
by Michael Cohn, October 27, 2005
Institutional investors reach settlement with investment banks that backed bankrupt telecommunications giant.
Institutional investors will receive $651 million to settle 32 lawsuits against the bankrupt telecommunications gia
nt WorldCom, the law firm representing them said on Thursday.
The lead law firm, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, sued on behalf of 60 institutions, including the Califor
nia Public Employees’ Retirement System, California State Teachers’ Retirement System, American International Group, and public pension funds from Alaska, Illinois, and West Virginia, according to
The Wall Street Journal
.
Most of the settlement will be paid by 17 securities firms and banks, primarily
Citigroup
and JPMorgan Chase, which underwrote the stock offerings of WorldCom, now known as
MCI
.
Shares of MCI were up $0.05 to $19.91 in recent trading, while shares of Citigroup were down $0.06 to $45.59 and shares of JPMorgan Chase were down $0.09 to $36.01.
The settlement “is groundbreaking as it furthers the cause of more stringent disclosures by banks underwriting future stock and bond offerings,” said Jonathan Spira, chief analyst of Basex, an IT research firm specializing in knowledge sharing and collaboration.
The settlement is in addition to a $6.1-billion class action settlement that occurred in the wake of WorldCom’s collapse in 2002, led by the New York State Common Retirement Fund. Citigroup and JPMorgan Chase together paid the bulk of that settlement.
Some WorldCom shareholders elected not to participate in that settlement and were free to continue with their own separate lawsuits, which led to Thursday’s settlement.
The attorneys are said to receive $85 million in legal fees on top of the $651 million.
WorldCom CFO Scott Sullivan received a five-year prison sentence in August for his role in the accounting scandal (see
WorldCom CFO Going to Prison
). WorldCom CEO Bernard Ebbers received a 25-year sentence
.
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