In one of the largest securities fraud settlements ever, financial services giant Citigroup Inc has agreed to pay US$2.65 billion to settle a class action suit brought by investors who bought WorldCom Inc securities before the telecommunications company went bankrupt in 2002.
It was the second biggest settlement of a securities class action case ever, after a US$3.2 billion settlement by services giant Cendant Corp in 2000 over accounting fraud that cost shareholders billions, according to New York State Comptroller Alan Hevesi.
And the deal with Citi is just the first step, Hevesi said Monday in announcing the settlement.
The comptroller, who is taking the lead in the class action case, said he was pursuing similar agreements with 17 other investment banks that could result in a further US$2.8 billion in money for WorldCom stock and bond holders.
The other institutions include J.P. Morgan Chase & Co, which could be liable for up to US$1.2 billion, as well as Banc of America Securities and Deutsche Bank AG, he said.
Hevesi said the other investment banks -- which along with Citi underwrote some US$17 billion in WorldCom bond issues in 2000 and 2001 -- have 45 days to agree to a settlement similar to Citi's or face trial next January.
"This is not the end of our third-party litigation," Hevesi said in pledging to pursue all legal remedies against the institutions that backed WorldCom.
Citigroup's brokerage division was a key backer of WorldCom securities before the telecoms firm filed for the biggest bankruptcy in history in July 2002 amid accounting irregularities.
Last month, the company -- now known only as MCI -- emerged from bankruptcy and shed more than US$35 billion in debt.
MCI plans to eliminate 7,500 jobs this year -- about 15 percent of its work force -- to cut costs as its struggles with weak revenues that resulted in a quarterly loss of US$388 million, the company said Monday.
Hevesi said that the US$2.65 billion Citi is paying would be allocated with US$1.45 billion to bondholders and US$1.2 billion to shareholders.
He and the state's attorneys declined to say what investors' total losses were or what percentage the settlement rep-resented of those losses, saying that the size of the class was still an issue and valuing losses was complicated.
Lawyers' fees will also come from the settlement amount.
In its settlement announcement, Citigroup, which is headquartered in New York, denied violating any law.
It said it was settling "solely to eliminate the uncertainties, burden and expense of further protracted litigation."
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